The price of oil soared in early trading on Monday following the drone attach on Saudi Arabia’s Aramco facility over the weekend, with single day jumps not seen since Saddam Hussein invaded Kuwait in the 1990s.
Oil markets close over the weekend, but when they opened on Monday morning, a price of a barrel jumped 20% to nearly 72 dollars, although within a few hours, this had halved to a rise of 10%.
Analysts and traders remain concerned over how quickly the Saudis can restore production at the facility which processes crude oil and accounts for 5% of the world’s oil supply. The facility produced half of all the kingdom’s oil – around five million barrels a day.
Some were suggesting it could lead to oil hitting 100 dollars a barrel – something not seen since 2014 – but others suggested the price could settle after President Donald Trump said the US could dip into its oil reserves to steady prices.
The Saudis have also said they expect to address the problems in the next couple of days, although how quickly the facility can be up and running will be closely watched by the markets.
Hussein Sayed, chief market strategist at FXTM, warned: “Such an event may have far more catastrophic consequences on the world economy than any other event which has occurred over the past couple of years.
“Such a reaction in price suggests that we are currently facing an unprecedented threat to oil supplies that could reverberate through the global economy.
“The market has suddenly shifted from being oversupplied to undersupplied, and even if we combine all the spare global capacity available, that won’t make up half the current disruption.”
Traders were also concerned that the rhetoric between the US and Iran could ramp up, with the attack being claimed by Iranian-backed Houthis rebels in Yemen.
The US is already blaming Iran for the attack, and the fear is that a military conflict in Iran could reduce oil supplies even further.
Ipek Ozkardeskaya, senior market analyst at London Capital Group, said: “The Saudi incident increased tensions between the US and Iran, as the US accused Iran of the drone strikes on Aramco.
“But regardless of who is responsible for these attacks, the US accusations on Iran can only wash away the hopes for improved diplomatic relations between the two countries following (John) Bolton’s departure last week. Hence, oil prices should settle higher than their pre-attack levels.”
Oil company shares soared in early, with BP and Shell both the biggest risers on the FTSE 100 – up 3.8% and 2.8% respectively, whilst smaller oil producers – including Tullow Oil, Premier Oil and Nostrum Oil & Gas all up.