Oil prices surged more than 10 percent on Monday after attacks on two Saudi Arabian oil facilities that slashed output in the world’s top producer by half, equivalent to more than 5 percent of global oil supply.
West Texas Intermediate jumped 10.68 percent to $60.71 and Brent climbed 11.77 percent to $67.31 following the strikes on facilities run by Aramco.
Brent plunged almost 20 percent at one point on Monday, while WTI sank around 15 percent before paring the gains.
“Tensions in the Middle East are rising quickly, meaning this story will continue to reverberate this week even after the knee-jerk panic in oil markets this morning,” said Jeffrey Halley, senior market analyst at OANDA.
S&P Global Platts: Risk premium up in crude market
Attacks on Saudi oil plants have boosted concerns about supply security in the Middle East and should raise the risk premium in the global crude market, shifting focus from a gloomy economic backdrop, S&P Global Platts said on Sunday.
“The sudden change in geopolitical risk warrants not only an elimination of the $5-10 a barrel discount on bearish sentiment, but adds a potential $5-10 a barrel premium to account for now-undeniably high Middle Eastern dangers to supply and the sudden elimination of spare capacity,” it said in a note.
“As such prices are likely to break out of the current $55-65 a barrel options range, to test the high $70s as currently supported by fundamentals.”
Prices could move higher still if Saudi output is curtailed for a more substantial period, the note’s author Chris Midgley, global head of analytics at S&P Global Platts, wrote. However, that is not its current assumption.
An industry source briefed on the developments told Reuters on Sunday that Saudi Arabia’s oil exports will continue as normal this week as the Kingdom taps into stocks from its large storage facilities.
Platts said, however, that “any evidence of prolonged disruption of production would heavily impact OPEC spare capacity and the ability of the IEA to use Strategic Petroleum Reserves to shore up the market.”
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