Drone attacks on two oil facilities in Saudi Arabia have changed the dynamics in the global oil market, causing a surge in prices on Monday, disrupting global oil supply, and raising worries over secure energy supply from the region.
Oil prices soared after the attacks caused interruption of 5.7 million barrels per day (mbpd) of oil supply from Abqaiq and Khurais sites of Saudi Aramco, which is more than half of the total 9.8 mbpd Saudi oil production.
The amount of interruption is equal to almost 6% of global oil supply that stood at 100.7 mbpd in August 2019, according to the International Energy Agency's Oil Market Report for September.
Due to the disruption in the world's largest crude exporter's output, oil prices jumped as much as 20% in the global market. International benchmark Brent crude climbed to as high as $$71.62 per barrel during early trading hours -- its highest level since May 22.
While Saudi officials said 2 mbpd of output could be restored as early as Monday, bringing full capacity back online could take not days but weeks, according to officials.
With supply disruptions, oil prices are expected to remain above $65 per barrel during the following weeks, analysts say.
- Tensions rise in Middle East
While the attacks were condemned by the United Nations, European Union, Turkey, Arab nations and many countries around the world, the U.S. directly blamed Iran, which rose tensions in the Middle East.
"Tehran is behind nearly 100 attacks on Saudi Arabia while Rouhani and Zarif pretend to engage in diplomacy. Amid all the calls for de-escalation, Iran has now launched an unprecedented attack on the world’s energy supply," U.S Secretary of State Mike Pompeo said via Twitter on Saturday.
"There is no evidence the attacks came from Yemen," Pompeo added; however, Iran-backed Houthi group in Yemen said Monday oil facilities in Saudi Arabia remain a target, adding their weapons could reach anywhere in the kingdom.
Iranian Foreign Ministry denied Monday the allegations of the U.S. that Tehran is responsible the attacks, saying the allegations are "baseless and outrageous."
"Iran supports the Yemeni people suffering from the Saudi disproportionate bombardments," spokesman Abbas Mousavi said.
- Supply security worries
The recent attacks on Saudi Aramco have increased worries over secure supply of energy from the Middle East, where some of the world's largest oil producers and exporters.
In recent months, oil tankers, refineries, pipelines and other facilities have been targeted in the region, disrupting oil supply and causing fluctuations in crude prices.
After the U.S. sanctions on Iran that became effective in November 2018, Tehran threatened to block the Strait of Hormuz -- the world's largest chokepoint for oil transit.
U.S. President Donald Trump said late Sunday his country remains "locked and loaded" against the attackers, and offered to release some of the U.S.' strategic petroleum reserves to balance the oil market.
U.S. Energy Secretary Rick Perry said early Monday the reserves are "sufficient to offset Iran’s attack on the global economy and energy markets."
- Aramco's IPO under risk
Although high oil prices would benefit Saudi Aramco's initial public offering (IPO) that is scheduled for November this year in Saudi stock exchange Tadawul, the drone attacks have raised questions about security.
As seen in recent months, the kingdom's crown jewel is vulnerable against attacks, and investors' worries increase amid how much Riyadh could protect Aramco's assets.
Saudi Arabia aims to raise $100 billion by selling 5% of shares during the IPO. If this is achieved, Aramco's market capitalization would be $2 trillion -- highest value for a publicly traded company in history.
Yet, security remains the most significant concern for Saudi officials at the moment before Aramco's IPO goes forward, according to analysts.
By Ovunc Kutlu