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Oil price 'to soar' after attacks on Saudi plants

September 15, 2019

The kingdom's oil production has dropped by 5.7 million barrels a day after Saturday's drone strikes on two processing facilities. As Riyadh and Washington point the finger at Tehran, the price of oil is set to rise.

A Saudi police cruiser sits in a parking lot as smoke rises from a fire at the Abqaiq oil processing facility
Image: picture-alliance/AP Photo/Al-Arabiya

Global oil prices are set to rise sharply after Saturday's attacks on two Saudi Arabian oil refineries cut the country's oil production by more than half, energy analysts have predicted.

Iran-backed Houthi rebels, fighting against a Saudi-led coalition in neighboring Yemen, claimed responsibility for "a large-scale operation involving 10 drones" against the Abqaiq and Khurais oil facilities run by the Saudi state-owned oil company, Aramco.

"Any attack on Saudi Arabia is sure to shake oil markets because they currently hold the majority of spare crude production capacity," warned Bernadette Johnson, vice president of market intelligence at energy analysts Enverus.

She said if the production cut was prolonged, "we should expect to see a big jump in price until the fields return."

The financial channel CNBC cited several energy analysts as saying that oil prices could immediately spike by $5-$10 when markets reopen on Sunday night (US time), while other commentators predicted $100 (€90) per barrel of oil. On Friday, Brent crude traded at $60.22 a barrel.

Saturday's attacks caused no casualties but forced a suspension of production at the two plants, where extensive damage was reported from huge explosions triggered by the unmanned aircraft.

Read more: Is a US-led war with Iran on the horizon as troops head to Saudi Arabia?

Oil shortfall to hurt

The production halt means the world's biggest crude exporter has cut oil output by 5.7 million barrels and gas production by an estimated 2 billion cubic feet (56.6 million cubic meters) per day.

"Abqaiq is perhaps the most critical facility in the world for oil supply," warned Jason Bordoff, founding director of the Center on Global Energy Policy at New York's Columbia University.

He also predicted a jump in oil prices in response to the attacks and said that if the disruption was prolonged, several countries would likely need to tap their emergency oil reserves.

Read more: Israel: 'Imminent' Iranian killer drone attack foiled

Saudi oil facility on fire
Image: Reuters

However, the Paris-based International Energy Agency (IEA) played down the impact of the production cut, which equals 5% of global oil supply.

'Ample stocks'

"For now, markets are supplied with ample commercial stocks," the IEA said in a statement on Saturday.

Aramco said it would take 48 hours to give an accurate assessment of when production could be restored.

Riyadh and Washington quickly blamed Iran for the drone strikes, and US Secretary of State Mike Pompeo insisted there was no evidence the attacks were launched from Yemen.

Map showing the location of Khurais and Abqaiq

Washington's chief diplomat labeled the incidents as an "unprecedented attack on the world's energy supply." 

His condemnation threw doubt on expectations of a meeting between US President Donald Trump and Iranian President Hassan Rouhani at the upcoming United Nations assembly, which was hoped to calm spiraling tensions between the archfoes in recent months.

Riyadh vows response

Saudi Arabia's Crown Prince Mohammad emphasized the country's "willingness and strength to thwart such a terrorist aggression and deal with its consequences," according to a statement carried by state news agencies. 

Read more: 'The war in Yemen has destroyed us'

Yemen's Houthi rebels have carried out a spate of cross-border missile and drone attacks targeting Saudi air bases and other facilities in what they say is retaliation for a long-running Riyadh-led bombing campaign on rebel-held areas in Yemen.

Last month, an attack claimed by Houthi rebels sparked a fire at Aramco's Shaybah natural gas liquefaction facility.

Rebel drones also targeted two oil pumping stations on Saudi Arabia's key east-west pipeline in May, shutting it down for several days.

mm/rc (AFP, AP, dpa, Reuters)

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