Oil prices rocket on slashed Saudi output
AFP – Brent crude surged by 20 percent Monday — the biggest gain since the 1991 Gulf War — after weekend drone attacks on two Saudi oil facilities halved output in the world’s top crude exporter, fuelling fresh geopolitical and growth fears.
WTI oil meanwhile soared 15 percent, also after President Donald Trump warned that the US was “locked and loaded” to respond to the attacks that Washington blamed on Iran.
Both key oil contracts pared gains but were still up by more than eight percent around 1030 GMT.
The price surges weighed across world stock markets on fears that a sustained higher cost of crude could further impact weak global economic growth.
But share prices of energy majors jumped, with traders seeing higher profits down the line for the likes of BP and Shell, whose stock won between 3-4 percent Monday.
In foreign exchange, the dollar was down against the euro and yen, while the pound slid as Prime Minister Boris Johnson was holding Brexit deal talks with EU chief Jean-Claude Juncker.
Gold, which along with the yen is seen as a haven in times of geopolitical and economic unrest, won one percent to $1,503.70 an ounce.
Markets’ focus was firmly on oil however after the weekend attack that was claimed by Tehran-backed Huthi rebels in neighbouring Yemen, where a Saudi-led coalition is bogged down in a five-year war.
“Oil price shocks like this are bad news for growth,” Neil Wilson, chief market analyst at trading group Markets.com, told AFP.
“It raises stagflation risks too — higher oil prices suppress growth and raise inflation. Of course it depends how long this lasts, does the risk-premium mean higher prices for the rest of the year or does it fade quickly if it comes back on stream this week?”
Saudi Arabia was on Monday expected to restore at least a third of the production lost to the attacks, according to experts and reports.
The Saturday strikes on national energy giant Aramco’s Abqaiq processing plant and Khurais oil field knocked 5.7 million barrels per day off production, more than half of the OPEC kingpin’s output.
Saudi Energy Minister Prince Abdulaziz bin Salman on Sunday said the kingdom would use its vast inventories to partially compensate for the lost production, and the US also authorised the release of its reserves.
“The attack wiped out around half of Saudi Arabia’s production — representing around five percent of global daily output — and highlighted the vulnerability of security at these facilities to drone attacks,” noted Oanda senior market analyst Craig Erlam.
“Spikes in oil prices when the global economy is already flirting with the idea of recession is not ideal and, if repeated and sustained, could ultimately be what tips us over the edge,” he added.
Facing a dauntingly uncertain economic horizon amid the US-China trade war, the Federal Reserve is set to cut interest rates this coming week.
– Key figures around 1030 GMT –
Brent North Sea crude: UP 8.6 percent at $65.39 per barrel
West Texas Intermediate: UP 8.0 percent at $59.24 per barrel
London – FTSE 100: DOWN 0.2 percent at 7,351.48 points
Frankfurt – DAX 30: DOWN 0.5 percent at 12,401.29
Paris – CAC 40: DOWN 0.7 percent at 5,616.10
EURO STOXX 50: DOWN 0.6 percent at 3,527.24
Hong Kong – Hang Seng: DOWN 0.8 percent at 27,124.55 (close)
Shanghai – Composite: FLAT at 3,030.75 (close)
Pound/dollar: DOWN at $1.2450 from $1.2496 at 2030 GMT
Euro/pound: UP at 88.74 pence from 88.66 pence
Euro/dollar: DOWN at $1.1048 from $1.1078
Dollar/yen: DOWN at 107.75 yen from 108.11 yen
Economic Intelligence Unit of the Ceylon Chamber of Commerce
Jehan Perera - Executive Director National Peace Council