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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Oil prices spike after Saudi drone attack causes biggest disruption ever – as it happened

An Aramco oil facility near al-Khurj area, just south of the Saudi capital Riyadh.
An Aramco oil facility near al-Khurj area, just south of the Saudi capital Riyadh. Photograph: Fayez Nureldine/AFP/Getty Images

Brent crude racks up biggest jump on record

Finally, the oil future market has closed with the sharpest jump in prices on record.

At least for Brent crude, which ended the day up 14.6% at $69.02 - the biggest percentage gain in record.

US crude oil also soared, ending the day 14.7% higher at $62.90.

The attack in Saudi Arabia sent traders scrambling to buy oil contracts, especially with Donald Trump warning that America is ready for war.

Economists are fearing weeks of disruption, possibly running into months, if Saudi can’t get the Abqaiq facility back online soon -- or if the tensions between the US and Iran escalate.

As Saul Kavonic, an energy analyst at Credit Suisse, put it:

We have never seen a supply disruption and price response like this in the oil market. Political-risk premiums are now back on the oil-market agenda.

That’s all for tonight! Thanks for reading and commenting. GW

Over at the White House, Donald Trump has said he hopes to avoid conflict in the Middle East:

Updated

Here’s a neat explanation of how a higher oil price could lead to faster inflation and slower global growth:

Updated

The world urgently needs competent leadership before the crisis in the Middle East boils over, writes foreign affairs commentator Simon Tisdall.

He’s particularly critical of the US administration, whose tearing-up of the Iran nuclear deal has escalated tensions in the region, and pushed Tehran into a corner:

Warning bells, akin to those used to alert fog-bound mariners steering towards rocks, have been ringing out for months.

They have mostly been ignored. The daunting bill for multiple acts of political insouciance, measured in lives and petrodollars, is now coming due.

Updated

Britain’s FTSE 100 index of blue-chip shares has closed 46 points lower at 7,321 points, a drop of 0.6%.

Stocks wilted in the face of concerns that escalating tensions in the Middle East will hurt global growth, and that higher oil prices will curb consumer spending on other item.

Financial group Prudential led the fallers, down 3.3%, on fears of lower growth in its Asia-Pacific markets.

IAG, British Airways’ parent company, dropped by 2.7%.

Cruise firm Carnival, which is also vulnerable to recession worries (and also uses plenty of oil!) lost 2.2%.

Oil companies, though, ended the day at the top - BP jumped by 4% and Royal Dutch Shell gained 2%

Full story: Saudi attack sends oil spiking

My colleagues Richard Partington and Jillian Ambrose have written about today’s oil spike:

The Saudi oil attacks have triggered the steepest petroleum market price surge in 30 years and stoked fears for the global economy.

The attacks on Saudi Arabia’s oil infrastructure led to the biggest jump in global prices since 1988 by wiping out 5.7m barrels of production a day – 5% of the world’s oil supply.

The price of Brent crude surged by more than $12 (£9.60) a barrel within seconds as trading began in London, quickly breaching the $70 a barrel mark.

The energy price shock reverberated through global markets, driving up shares in energy companies on the prospect of higher profits, while stock exchanges across Europe plunged into the red as investors took fright over rising geopolitical tensions.

Oil market analysts claim prices could surge towards $100 a barrel in the coming weeks if Middle East tensions reignite disruption in the strait of Hormuz, a key transit route for the world’s oil tankers.

A Middle East energy crisis could be a boon for US shale producers, but threatens to tip the stumbling global economy into a major recession by stemming supply to Asian economies.

Donald Trump said the US was “locked and loaded” to retaliate and could authorise the release of US oil reserves to help balance the market. But energy experts cast doubt on whether US fracking companies would be able to fill the gap left by Saudi oil production plants.

Bjørnar Tonhaugen, the head of oil markets at Rystad Energy, said the world was “not even close” to being able to replace Saudi exports.

Brent crude is pushing higher.... now up 11.5% today at $67.03 per barrel.

The Brent crude oil price
The Brent crude oil price Photograph: Refinitiv

Fiona Cincotta, senior market analyst at City Index, says traders are focusing on how quickly supply can return to normal at the Saudi Aramco plant.

Geopolitical risk in the Middle East is nothing new. However, what we are seeing is a physical disruption to supply, as the attacks over the weekend cut half the county’s oil production. This equates to a disruption on as much as 5% of global oil production.

We can expect oil prices to remain elevated whilst production is disrupted, some reports suggest that this could be weeks. As supply returns, we can expect the price of oil to start declining back towards $62, should geopolitical risks ease as well. However, with the US “locked and loaded” awaiting signs from Saudi Arabia that Iran was involved, tensions in the middle east could get worse before they get better. Under these circumstances the price of oil could remain elevated for some time yet.

Data provider Refinitiv has spotted that Saudi Arabia has been scrambling supertankers to export oil, to cover the shortfall from the Abqaiq attacks.

It says:

  • Tracking data shows at least 8 VLCC’s [very large crude carriers] that are currently loading in Juaymah and Ras Tanura, with another VLCC heading to berth at one of the Juaymah SBM offshore mooring systems

  • Refinitiv ship tracking data showing at least 11 ships currently waiting to load from Ras Tanura / Juaymah as disruption has resulted in a pile up of VLCCs

  • Saudi Arabia needing to draw out of reserves to meet commitments but low stocks will add to pressure
Oil tankers in the Gulf
Oil tankers in the Gulf Photograph: Refinitiv

A reminder: here’s our latest news story on the Saudi attacks:

US diplomat Richard Haass, who chairs the Council on Foreign Relations think tank, has tweeted about the Saudi attacks:

Over in New York, shares in oil companies have jumped, but airlines are sliding.

Exxon Mobile (+1.4%) and Chevron (+1.3%) are leading the risers on the Dow Jones industrial average.

Shale oil producers are also rallying:

American Airlines is dragging the market down though, down 5%, with Delta Air down 2.7%.

Big-name consumer stocks including American Express (-1.8%), Procter & Gamble (-1.6%) and Walt Disney (-1.2%) are also under pressure.

At over $66 per barrel, up 10% today, Brent crude is on track for its biggest one-day surge since the Gulf War in January 1991.

The FT’s Adam Samson has dug into the archives....

Here’s Reuters take on the latest news from Saudi Arabia:

The Saudi-led military coalition battling Yemen’s Houthi movement said on Monday that the attack on Saudi oil plants was carried out by Iranian weapons and did not originate from Yemen according to preliminary findings.

Coalition spokesman Colonel Turki al-Malki told a press conference in Riyadh that an investigation into Saturday’s strikes, which had been claimed by the Houthi group, was still ongoing and authorities were trying to ascertain the launch location.

The conflict in Yemen has been raging since 2015, with a terrible death toll. Figures released in June showed that almost 100,000 people have been killed, including thousands through the deliberate targeting of civilians.

Last year, charities warned that millions of children are at risk of starvation:

Saudi coalition: Attack didn't come from Yemen

The Saudi-led coalition fighting in Yemen is giving a news conference now, and claimed that they have evidence that Iran is behind Saturday’s attacks.

It’s being streamed here:

No translation, I’m afraid, but coalition spokesman Colonel Turki al-Malki has said that

  • The coalition has the capacity to defend “vital installations”
  • Investigations into the attacks on Saudi oil facilities are “ongoing”
  • Initial indications are that the attack didn’t come from Yemen...
  • ...and that the weapons used are Iranian
  • The coalition is now studying the place where the attacks came from.

Updated

Summary: Oil spikes after Saudi attack

Time for a quick recap.

The oil price has surged after Saudi Arabia’s largest production facility was attacked on Saturday, sparking fears of conflict in the Middle East.

Brent crude leapt by 20% in early trading to almost $72 per barrel - a record move, according to Bloomberg data. It then dipped back on hope that oil reserves will be released to avoid supply shortages.

At 2pm UK time, crude was up almost 11% at $66.80 per barrel, a two-month high.

The attack has removed more than five million barrels of oil from the market per day - or over half Saudi Arabia’s production -- making it the biggest knock to output ever.

The US has blamed Iran, a claim which Tehran has dismissed. US energy secretary Rick Parry warned:

“Make no mistake about it, this was a deliberate attack on the global economy and the global energy market.”

Map showing attack on Saudi oil production

Donald Trump moved quickly, tweeting overnight that he would unlock America’s strategic oil reserves. But he also raise the threat of military action, saying the US was ‘locked and loaded’ to respond to the perpetrator.

Trump has also claimed that America doesn’t need Middle East oil, as it is a net energy exporter (or at least it should be next year...)

UK foreign secretary Dominic Raab said the attack was a “very serious and outrageous attack”, but wouldn’t say whether Britain might join any military response.

Oil experts fear that the oil price could keep rising, if Saudi Arabia can’t repair the damage quickly. Goldman Sachs have predicted crude could hit $75 per barrel - there’s even talk that we could see $100/barrel again.

Economists have warned that the global economy could suffer -- more expensive oil means higher transport costs, leading to lower consumer spending.

Ivan Petrella, associate professor of economics at Warwick Business School, says:

“With the economy already showing clear signs of slowing down in most developed and developing countries, high oil prices could be the straw that breaks the camel’s back contributing to a recession.

“Central banks around the world will be forced to rethink their current policy stance if this rise in oil prices is passed onto the public through inflation.”

Shares in oil producers have soared, with BP gaining 5.5% and Royal Dutch Shell now up 3.2%.

European stock markets are in the red, though, as investors worry about the impact to growth.

European stock markets
European stock markets at 2pm UK time Photograph: Refinitiv

Updated

The Wall Street Journal has heard that Saudi Arabia is considering delaying the huge stock market flotation of its Aramco oil business.

Last weekend’s attacks on Aramco’s facilities has introduced a new complexity to the proposed IPO, which has already proved painful.

The WSJ says:

The attacks on Saudi Arabia’s oil facilities are testing new top officials at the Saudi Arabian Oil Co. and the kingdom’s national oil ministry, adding a fresh element of risk for international investors hoping to take part in Aramco’s initial public offering of stock.

Saudi Aramco is gearing up for a two-part IPO, in which it hopes to first sell a sliver of itself to investors on the local Saudi exchange, and then list shares internationally, according to people familiar with the matter. The listing plans have long been dogged by questions over valuation and the venue for an international stock-market debut.

Trump: We don't need Middle East oil anyway

Donald Trump has made another attempt to calm the oil markets, declaring that the US economy doesn’t need supplies from the Middle East anyway.

He’s tweeted that the US is now a ‘net energy exporter’, but will still help “allies” in the region (Saudi Arabia).

Is Trump correct? Not exactly...

The IEA has predicted that America will become a net energy exporter in 2020, so it’s probably not there yet. The US did become a net gas exporter in 2017 (producing more than it consumed).

But yes, the US did overtake Saudi Arabia for oil production last week, partly thanks to the shale oil boom.

Roadside assistance group the RAC has warned petrol stations not to hike prices, on the back of the Saudi attacks.

RAC fuel spokesman Simon Williams says retailers have only just begun passing on recent FALLS in the oil price -- so shouldn’t now race to put prices up again.

“There was an inevitable initial panic-driven surge in the oil price on Monday morning, but the situation then cooled. While the wholesale prices of both petrol and diesel look set to increase by 3p a litre, this doesn’t necessarily mean higher prices at the pumps because retailers only just began to pass on overdue wholesale price savings at the end of last week.

At that point the 128p forecourt price of petrol was 7p too high which means retailers should have a cushion to absorb the spike. If the barrel price remains high for a sustained period however, it could easily lead to several pence a litre being added to the average price of both fuels. Even after Friday’s 3p supermarket cut petrol is still averaging 127.77p and diesel 131.26p.

“We are hopeful the fact the US is releasing emergency oil stocks and that Saudi Arabia operates a global storage network will mean that drivers here in the UK will not be too harshly affected.”

The US stock market is expected to dip when trading begins in 90 minutes.

The Dow is down 100 point, or 0.4%, in the future market with airline stocks likely to fall sharply (as in Europe).

Saudi attack is biggest disruption ever

The Saudi attack is the biggest ever disruption to oil production, due to the importance of the Abqaiq site -- the largest of its type in the word.

Abqaiq produces around 70% of Saudi Arabia’s output, which exceeds 9.6 million barrels per day.

Saturday’s attack is thought to have removed 5.7m barrels from the market, even more than were knocked off by the Iranian revolution 40 years ago.

Oil market
Oil market Photograph: Bloomberg

Having said that, the oil market was smaller in 1979, when protests cut Iranian production from 6m barrels per day to 1.5m.

And the true impact of the Saudi attacks will depend on how quickly the facilities are prepared.

Geoffrey Smith, Director of Oil & Shipping Research at Refinitiv, comments:

“We are seeing oil loadings out of Saudi resume and are increasing to handle the shortfall over the weekend. The question is for how long Saudi Arabia can maintain export levels and quality while the damage is fixed.

The most likely effects are to be felt from November onwards as storage might start hitting critical levels if the processing facility has not been repaired.

Updated

A spokesman for UK prime minister Boris Johnson has condemned the Saudi attacks as a “wanton violation” of international law, at today’s briefing with journalists in Westminster.

Q: Could the UK release some of its oil reserves?

The UK business department is monitoring the situation closely, and working with the International Energy Agency*, Johnson’s spokesman explained.

* - the IEA would organise any co-ordinated international response

US energy secretary condemns attack

US Energy Secretary Rick Perry speaking during the International Atomic Energy Agency 63rd General Conference at the IAEA headquarters in Vienna, Austria, today.
US Energy Secretary Rick Perry speaking during the International Atomic Energy Agency 63rd General Conference at the IAEA headquarters in Vienna, Austria, today. Photograph: Florian Wieser/EPA

The US secretary of energy, Rick Perry, has condemned Iran for attacking Saudi Arabia’s oil facilities (which Tehran has denied), but also insisted the oil market is ‘robust’.

Perry was speaking at the International Atomic Energy Agency’s general conference in Vienna today.

He said that the attack was “unacceptable” and that Iran “must be held responsible”, adding:

“Make no mistake about it, this was a deliberate attack on the global economy and the global energy market.”

(thanks to Associated Press for the quote).

Perry added that the market was “resilient”, and predicted it would “respond positively” to the attack.

Here’s a Q&A explaining how the Saudi oil attacks took place, why it has geopolitical consequences, and what could happen next:

Amrita Sen, analyst at Energy Aspects, says consumers will see the impact of today’s oil price spike in a few weeks time.

Speaking on Sky News, she also predicts that the International Energy Agency could organise a “co-ordinated release of oil” if Saudi production remains disrupted for weeks.

That would protect consumers from a price spike.

IEA consumer countries are required to hold emergency oil stocks equivalent to 90 days’ worth of net imports, so there is some firepower to deploy.

Updated

The Goldman Sachs company logo

Goldman Sachs has predicted that oil could hit $75 per barrel (or 25% higher than last Friday), if Saudi oil supplies are disrupted for six weeks or more.

Currently, around half of Saudi Arabia’s 9.6million barrels per day have been knocked offline by Saturday’s attack. The key question is how quickly they return.

Goldman told clients that the longer the delay, the higher prices will go - even if America unlocks its strategic oil reserves to cope (as president Trump has pledged).

But if the oil price keeps rising, shale oil producers could hike their own output to cope. Goldman says. Demand would also suffer, which could cap prices.

“An extreme net outage of a 4 mb/d (million barrels per day) for more than three months would likely bring prices above $75/bbl to trigger both large shale supply and demand responses.”

The Europe-wide Stoxx 600 index has lost 0.6% this morning, with most sectors in the red.

Consumer-focused companies, banks and industrial groups are the top fallers, reflecting worries that an oil price shock could hurt the global economy.

Energy stocks have surged through, up 2.6% on average.

Reuters has heard that it may take “months” for Saudi Aramco to resume normal output volumes.

They say:

Saudi Aramco’s full return to normal oil production volumes “may take months”, two sources briefed on the company’s operations said on Monday, after attacks on Saudi oil plants knocked out more than half of the country’s output.

“It is still bad,” one source said.

S&P Global Platts has predicted that the oil price could test $80 per barrel if the situation deteriorates.

The attack is an escalation in severity after a number of strikes on key oil infrastructure and transit routes in the Middle East this year.

Flows had been temporarily halted through Saudi Arabia’s main oil transport pipeline to terminals and refineries on the Red Sea, while oil tankers have been attacked in the Strait of Hormuz maritime chokepoint.

Kit Juckes of French bank Société Générale says the loss of half Saudi Arabia’s oil production has left the markets with three questions:

How fast can supply recover, can further attacks be prevented, and what will the wider geopolitical implications be? Oil prices spiked higher but drifted down into the European open.

However, even for those who aren’t sceptical about Saudi claims to be able to restore a third of the lost output as early as today, there is bound to be a higher risk premium attached to prices going forwards.

Slower global growth was beginning to act as a drag on oil prices, but the risk premium goes the other way and that in turn is another drag on global growth

The Daily Telegraph predicts that petrol prices will rise quickly, as the impact of today’s crude oil move feeds through to the forecourt.

They say:

Markets are braced for a spike in the cost of crude, and analysts expect the costs of the crisis to be felt at the pumps almost immediately.

Ashley Kelty, a veteran oil and gas analyst, said he would expect petrol prices to jump “at least 5p per gallon in the coming days and further hikes to come as news comes out on the longer term impact of the Saudi outage”.

More here:

It should take a few weeks for oil bought today to be refined, shipped and sold. The BBC’s John Campbell suspects some suppliers aren’t hanging about, though:

Could oil hit $100?

Hussein Sayed, chief market strategist at FXTM, believes rising tensions in the Middle East could push the oil price as high as $100 per barrel.

Crude hasn’t been that high since 2014, and it would take a 50% surge to get back there.

That may seem extreme, but a prolonged period of disruption could push prices sharply high, Sayed argues.

That’s because the oil market is now suddenly undersupplied, having lost 5% of supplies overnight.

Sayed says:

Three days ago, oil prices hitting $100 a barrel was almost an impossible scenario. Not anymore. That’s not just because of the current disruption from Saudi Arabia, but the fact that the chances of military conflict in the region have risen dramatically. US Secretary of State Mike Pompeo blamed Iran for the drone attacks, and Republican Senator Lindsey Graham said the United States should consider an attack on Iran’s oil refineries. Meanwhile President Trump warned that the US is ‘locked and loaded’. If such statements continue to flow from the US administration, geopolitical risk premium would increase significantly as any strike against Iran may put the whole Gulf region in jeopardy.

If investors begin pricing in the possibility of an attack against Iran’s crude infrastructure, oil may quickly hit the $100 benchmark.

The brent crude oil price
The Brent crude oil price over the last decade. Photograph: Refinitiv

Updated

Raab: Saudi attack is 'despicable', with oil market implications

UK foreign secretary Dominic Raab
UK foreign secretary Dominic Raab Photograph: Sky News

Britain’s foreign secretary, Dominic Raab has described the attacks as ‘despicable’ - but was cautious about whether the UK could take part in any military response.

He told Sky News:

The attack on the Aramco installations was a wanton violation of international law

It’s despicable. We stand firmly in support of our Saudi partners and the other international players and countries in the region.

Raab says it was “not entirely clear who is responsible”, but he hopes to get a “very clear picture” shortly

Q: Could we provide military support to Saudi Arabie?

Raab says it’s too early for such a question. We need to get the full facts first, and he’s not going to prejudge until we have them.

Q: How worried should we be about volatility in the markets?

We’ll have to see how the situation plays out this week, Raab replies.

It was a very serious attack on Saudi Arabia which has implications for the global oil market and supplies, he said, adding:

It’s a very serious and outrageous act. It needs as clear and united international response as possible.

Oil stocks leap, airlines slide

The London Stock Exchange in London.

Shares in oil companies have jumped this morning, following the jump in crude prices.

BP is the top riser on the FTSE 100, up 3.8%, closely followed by Royal Dutch Shell which is 2.8% higher. Smaller oil producers are also sharply higher.

BAE Systems, the weapons maker, has gained 0.7% -- suggesting traders are anticipating heightened military tensions.

But most stocks are down this morning, knocking 0.5% or 35 points off the FTSE 100 in early trading.

Airline, though, are suffering. British Airways’ parent company, IAG, is down 2.2%, and easyJet has lost 2.5%.

Experts: Oil surge could help trigger recession

Concerns is swirling that the jump in the oil price could hurt global growth, and possibly trigger a downturn.

Robin Bew of the Economist Intelligence Unit points out that the world economy was already looking vulnerable:

Ranko Berich, Head of Market Analysis at Monex Europe, agrees -- calling the jump in crude prices ‘ominous’.

The weekend’s attacks in Saudi Arabia will have two consequences for financial markets and the global economy: the immediate oil price shock, which has already hit, and the longer-term costs of increased tensions or even a possible outbreak of conflict in the Persian Gulf.

“The size of the initial shock to oil prices was immense. Spot prices have surged by amounts unprecedented since the 1990 Iraq invasion of Kuwait, while Brent crude oil futures recorded their largest intraday surge since trading began in 1988, although since then the initial knee jerk surge has been pared bac

Craig Erlam, senior market analyst at trading firm OANDA, warns that the world economy could be tipped into a downturn.

The attack was as severe as it was unexpected but that’s not the worst thing about it. Saudi Arabia believes a significant proportion of the outages can be back online in a few days while Trump also approved release of supplies from the Strategic Petroleum Reserve to ensure the market remains well surprised.

None of this should make us feel relaxed about the potential for further attacks though and the longer-term implications on the oil market. Spikes in oil prices when the global economy is already flirting with the idea of recession is not ideal and, if repeated and sustained, could ultimately be what tips us over the edge.

Saudi Aramco, the oil giant, has told Indian refiners that there will be no shortage in supplies, according to the Indian oil ministry (Reuters reports from New Delhi).

Although today’s 20% spike is the biggest intraday move under modern trading, there have been dramatic shifts in the past.

Back in 1973, the Opec cartel doubled the price of oil overnight (from $5.12 a barrel to $11.65). That created a huge inflation shock, and even forced America to lower its speeding limits to preserve gasoline supplies.

Chart: Brent crude's surge overnight

Here’s a chart showing how oil made its biggest intraday jump since the crude futures contract was created over 30 years ago:

The Brent crude oil price
The Brent crude oil price spiked from $60 to nearly $72
this morning as Saudi oil attacks jolted the markets Photograph: Refinitiv

Ipek Ozkardeskaya, senior market analyst at London Capital Group, explains:

Brent crude jumped 19%, as WTI crude surged 15% at the weekly opening bell, after a drone attack on Saudi Arabia’s state oil company Aramco halved the country’s production over the weekend. This has been the biggest one-time disruption in oil supply in the history, which has resulted in the largest single jump in prices in record....

The Saudi incident increased tensions between the US and Iran, as the US accused Iran of the drone strikes on Aramco. Iran refused. 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 Bolton’s departure last week. Hence, oil prices should settle higher than their pre-attack levels.

Bloomberg: Biggest oil move on record

The 20% surge in the oil price this morning is the biggest intraday move since the Brent crude contract was created in the 80s, according to Bloomberg.

It says:

Oil posted its biggest ever intraday jump this morning, to more than $71 a barrel after a strike on a Saudi Arabian oil facility removed about 5% of global supplies, an attack the U.S. has blamed on Iran.

In an extraordinary start to trading on Monday, London’s Brent futures leapt almost $12 in the seconds after the open, the most in dollar terms since they were launched in 1988. Prices have since pulled back about half of that initial surge of almost 20%, but were still heading for the biggest advance in more than three years.

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

More here: Oil Jumps Most on Record After Attack Cuts Saudi Arabian Supply

Updated

Here’s our news story on the Saudi attacks:

Trump: There's plenty of oil!

Donald Trump has tried to calm the oil market, by opening the taps on America’s stocks of crude oil.

That could mitigate the impact of losing half of Saudi Arabia’s production, for an unknown time.

Trump also warned that America is “locked and loaded” to retaliate, which will not calm nerves in the City.

Introduction: Oil price surges after drone attacks

An image provided by the U.S. government and DigitalGlobe and annotated by the source, shows damage to the infrastructure at Saudi Aramco’s Abaqaiq oil processing facility in Buqyaq, Saudi Arabia.
An image provided by the U.S. government and DigitalGlobe and annotated by the source, shows damage to the infrastructure at Saudi Aramco’s Abaqaiq oil processing facility in Buqyaq, Saudi Arabia. Photograph: maldonci/AP

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Fears of escalating conflict in the Middle East are gripping the markets this morning, following the drone attack on Saudi Arabia’s biggest oil production facility on Saturday.

The attacks leave Saudi Arabia facing weeks without full crude and gas production capacity, and ratchet up the geopolitical tensions in the region.

The oil price has surged 10% this morning (it was up 20% at one stage!) amid fears of disruption to energy supplies.

Brent crude oil hit $71.95 for the first time since May, and is currently changing hands at $66.63 per barrel, up from just $60 on Friday night.

This will push up fuel and heating costs -- lifting inflation and potentially weakening the global economy at a critical moment.

Houthi rebels based in Yemen have claimed responsibility for the attack, saying they used 10 drones to knock out facilities at two sites, creating a huge fire.

The attack has real consequences for the global economy, taking about 5% of production offline. The production facilities at Abqaiq and Khurais produce more than half of Saudi Arabia’s oil -- which makes up 10% of global supplies.

It also raises the tensions between the US and Iran, with Washington blaming Tehran for the attack.

Secretary of State Mike Pompeo declared:

“Iran has now launched an unprecedented attack on the world’s energy supply.”

Iran denied the charge, with its foreign minister accusing Pompeo of “blind accusations and inappropriate comments”.

Financial experts are worried. Royal Bank of Canada’s Helima Croft says this attack is the most serious assault to date on the country’s energy infrastructure.

RBC says:

Though Aramco officials have indicated that exports will resume in the next few days, there is nothing to suggest that this is a one-off event and that the Iranian-backed Houthi rebels will forgo further strikes on Saudi sites.

European stock markets are expected to drop, with the main indices called down between 0.3% and 0.6%.

Otherwise there’s not much in the calendar, beyond a new survey of factories in the New York region.

The agenda

  • 1.30pm BST: US Empire manufacturing report

Updated

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