Oil boils as drone attacks on Saudi facility stokes supply fears

THE drone attacks on a Saudi Arabian oil facility over the weekend and the subsequent geopolitical unease have triggered a risk off move in markets, causing oil prices to boil over $71 a barrel in early trade.

London’s Brent futures leapt almost $12 in the seconds after the open, the most in dollar terms since they were launched in 1988, reports Bloomberg News.

Prices have since backtracked, with oil up around 10% at $66.31 on supply concerns, says TreasuryONE.

The strike removed about 5% of global supplies, according to Bloomberg.

“We have never seen a supply disruption and price response like this in the oil market,” Saul Kavonic, an energy analyst at Credit Suisse Group AG, told Bloomberg. “Political risk premium is now back on the oil market agenda.”

“This, together with poor economic data out of China with industrial output numbers being the lowest in 17 years, has pushed investors toward safe haven assets,” said TreasuryONE in an early market update.

Precious metals surge, with gold at $1,504.70, platinum at $954.12 and palladium at $1,617.20, while US Treasury yields continue their rise on fears over the geopolitical fallout from the attacks and ahead of the FOMC this week.

According to Bloomberg state energy producer Saudi Aramco lost about 5.7 million barrels per day of output on Saturday after 10 unmanned aerial vehicles struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais.

The newswire service said for oil markets, it’s the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbour. It also exceeds the loss of Iranian oil output in 1979 during the Islamic Revolution, according to the International Energy Agency.