You are using an older browser version. Please use a supported version for the best MSN experience.

Crude prices jump 12% after drone strikes halve Saudi oil output; Trump says U.S. to tap strategic reserves

The Washington Post logo The Washington Post 9/16/2019 Thomas Heath

Oil prices jumped on global markets Sunday night after a wave of weekend drone attacks instantly erased half of Saudi Arabia’s oil production.

Brent crude on Sunday traded at $70.98 per barrel on oil futures markets, an 18 percent surge from Friday’s close of $60.15, before falling back to about a 12 percent increase. U.S. benchmark West Texas intermediate crude opened at $61.27 per barrel, a 12 percent climb, before easing to a 10 percent gain.

On Sunday, President Trump said via Twitter that he had authorized the release of oil from the Strategic Petroleum Reserve in a to-be-determined amount. He added that he told government agencies “to expedite approvals of the oil pipelines currently in the permitting process in Texas and various other States.” 

The attack on Saudi Arabia’s oil infrastructure immediately knocked out 5.7 million barrels — or nearly 6 percent of the 100 million barrels the world consumes per day.

“A supply disruption on this scale is an extraordinary event,” said Pavel Molchanov, an oil analyst with Raymond James. “No single disruption on this scale has occurred in decades.”

Subscribe to the Post Most newsletter: Today’s most popular stories on The Washington Post

U.S. oil prices have been trading in a belt between $50 and $60 a barrel in the past six months. Brent crude, the global benchmark, has been trading slightly above that range. Most oil companies and nations favor world oil prices in the $70 to $80 range, which allows a healthy profit without rattling the economy or sparking a rush for alternatives to petroleum.

Oil prices could spike in the next several days as a result of the attack on Saudi’s state-run oil company, Saudi Aramco, the second-largest oil producer in the world at 9.85 million barrels per day in August.

“The Saudis are scrambling to make repairs and keep the oil flowing,” said John Kilduff of Again Capital. “The response will determine how high prices go and for how long.”

A jump in oil prices is likely to weigh on an already-declining global economy, one beset by the U.S. trade war with China, White House sanctions against Iran and a decade-long economic expansion that shows signs of petering out.

On Sunday, Saudi officials said only one-third of the affected 5.7 million barrels would be restored by Monday, leaving millions of barrels per day offline indefinitely.

With oil giants Venezuela and Iran mostly absent from world markets, an extended Saudi supply disruption could force industrial economies such as the United States to tap emergency reserves. There are 1.5 billion barrels available in strategic reserves among industrial economies.

The U.S. Strategic Petroleum Reserve currently holds 645 million barrels, equal to about one month of U.S. oil consumption.

“The good news is that there is more than enough oil in inventory to prevent fuel shortages,” Molchanov said. “There are not going to be gasoline lines like there were in the 1970s.”

Yemen’s Houthi rebels asserted responsibility for the weekend blasts, but the United States blames Iran for the “unprecedented attack on the world’s energy supply.”

Tehran has denied responsibility.

The last time the world lost a comparable slice of its oil supply was during the Gulf War. There was a substantial increase in global oil prices, but the process was gradual because the war had been expected.

Oil prices result from a careful balance of supply and demand. Supplies have been mostly in balance this year, with U.S. production making up for declines in Venezuela and Iran.

Even though the United States produces more oil than ever before — close to 12 million barrels a day — a disruption halfway around the world can send prices soaring on global markets.

But Americans are more insulated from dramatic swings because technological advances have increased domestic oil output and heightened efficiency, from automobile mileage to home heating. U.S. shale oil production has reduced domestic demand for oil from the Persian Gulf from 3 million barrels a day in 2003 to 1 million barrels. The U.S. economy is much less dependent on manufacturing than it was during the oil price spikes of the 1970s and ’80s.

Oil companies are also a smaller piece of the stock market. The energy sector made up more than 20 percent of the total value of Standard & Poor’s 500-stock index in the 1970s. Now it’s only 4.44 percent.

Oil prices have been relatively calm in recent weeks because of high production and slowing demand. But trade disputes, sanctions against Iran and Venezuela’s internal meltdown have contributed to confusion in oil markets.

U.S. oil production has helped keep a lid on gasoline prices. Americans this month saw the lowest Labor Day gas prices in three years.

Saudi Arabia has been the industry’s great stabilizer, with $10 trillion worth of oil under its sands. But the kingdom and other members of the Organization of the Petroleum Exporting Countries have been unable to limit production enough to keep prices within the sweet spot of $70 to $80 a barrel.

“This attack provides a stark reminder that geopolitical risk to oil supply is very real,” Molchanov said.


More From The Washington Post

The Washington Post
The Washington Post
image beaconimage beaconimage beacon