At the beginning of the week, on September 16, the price of Brent oil jumped by more than 13 percent, and WTI by more than 11 percent. in relation to prices from Friday, September 13. As a result, oil prices set a 4-month high on Monday, with Saturday's attack on Saudi refineries as the main reason for price increases.
On Saturday, two oil installations owned by Saudi Aramco, a state oil giant and the largest oil producer in the world, were attacked. What's more, the attack, which was carried out using drones, was directed at the largest of the company's refineries. There were fires and some production closed. It is estimated that after the attacks, production dropped by more than half and decreased by 5.7 million barrels a day. This, in turn, means that world production has shrunk by about 5 percent overnight, which immediately translated into price after the weekend.
Attacks can provoke escalation of the conflict in the Middle East. The United States and President Donald Trump are already threatening a retaliatory attack, and they find Iran guilty, although Yemeni Huti pleaded guilty. In Yemen, a civil war has been going on for years between the Huti rebels who are supported by Iran and a coalition supported by Saudi Arabia. Although the guilty party was not clearly indicated, the situation is becoming increasingly tense, because after the attacks on tankers the current attack was unprecedented.
Saudi Arabia has announced that it will mobilize reserves to meet its contracts and deliver the oil it has previously purchased. The United States also announced that they are ready to launch the Strategic Petroleum Reserve to cover oil demand after falling production. The world seems prepared for a decline in production, but is it ready for another conflict in the Middle East?
WTI oil price, daily chart. Source: Conotoxia trading platform
Oil prices seem to stabilize after high market opening. However, the likelihood of a conflict escalating may still keep prices at high or higher levels. For a world that is currently experiencing an economic slowdown, the persistent increase in oil prices does not seem to be a positive factor for a quick recovery.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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