Oil markets are grappling with uncertainty over how long it will take Saudi Arabia to restore output after the devastating attacks that knocked out 5% of global crude supply.
As state oil giant Saudi Aramco grows less optimistic that there’ll be a rapid recovery after the strikes that cut the nation’s output by half, investors are seeking clarity on just how bad it could be. Initially, it was said significant volumes could begin to return within days, but Saudi officials later told a foreign diplomat they face “severe” disruption measured in weeks and months. Brent crude slipped below $69 a barrel on Tuesday after a record jump Monday.
“If you take 50% of the lost output and bring it back online, you’re still left with an absolutely huge disruption that might continue for some time longer,” Richard Mallinson, a geopolitical analyst at consultant Energy Aspects Ltd. in London, told Bloomberg television. “Things are definitely even more tense across the Middle East than they were before Saturday.”
The worst ever sudden disruption to global oil supplies continues to reverberate as geopolitical risk premiums soar on concern over instability in the Middle East and a potential retaliation against Iran, which the U.S. has blamed for the strikes. Traders may not have fully priced in the impact of the supply losses, according to Citigroup Inc.
The attacks, which damaged one of the Saudis’ flagship fields and a key processing complex, triggered one of the wildest bouts of trading seen in oil markets, with Brent futures rising 19% in a matter of seconds at the open on Monday and ending the day up 15%, their biggest single-day advance.
It was a more subdued start to trading on Tuesday, with both Brent and West Texas Intermediate futures edging lower.
Saudi Aramco lost about 5.7 million barrels a day of output on Saturday after 10 unmanned aerial vehicles struck the Abqaiq facility and the kingdom’s second-largest oil field in Khurais.
While Aramco is still assessing the state of the Abqaiq site and the scope of repairs, it currently believes less than half of the plant’s capacity can be restored quickly, according to people familiar with the matter, who asked not to be identified because the information isn’t public.
Saudi Aramco is firing up idle offshore oil fields -- part of its cushion of spare capacity -- to replace some of the lost production, one person said. Customers are also being supplied using stockpiles, though some are being asked to accept different grades of crude. The kingdom has enough domestic inventories to cover about 26 days of exports, according to consultant Rystad Energy A/S.
Customers are also preparing to tap strategic reserves if needed. U.S. President Donald Trump authorized the release of oil from the U.S. Strategic Petroleum Reserve, while the International Energy Agency, which helps coordinate industrialized countries’ emergency fuel stockpiles, said it was monitoring the situation.