Oil Price Explosion – Close 15% Higher On Record Trading Day: Saudi Arabia lost 5.7 million barrels per day (mb/d) of production after the Abqaiq facility was attacked on Saturday, shuttering more than half of the country’s oil production. The disruption is larger than was lost during the Iranian Revolution in 1979, Iraq’s invasion of Kuwait in 1990, and even during the Arab Oil Embargo in 1973, as Bloomberg notes. Brent briefly surged by more than $11 per barrel at one point during intraday trading on Monday, the largest increase in the benchmark’s history dating back to 1988.
Early accounts indicate that Saturday’s attack may have come from a group of drones, while other analysts believe it was carried out by cruise missiles. It’s also possible there was a combination of both.
Abqaiq is a critical oil processing facility in Saudi Arabia, a chokepoint that has no easy workaround. The facility does not make press headlines, but oil experts have long been aware of its critical importance – and vulnerability.
“For the oil market if not global economy, Abqaiq is the single most valuable piece of real estate in planet earth. A successful attack on Abqaiq would be akin to a massive heart attack for the oil market and global economy,” Bob McNally of the Rapidan Energy Group said in a statement.
“It’s the mother ship of the Saudi energy system,” Helima Croft, global head of commodity strategy at RBC Capital Markets, according to the Wall Street Journal. “This is probably the worst infrastructure attack we’ve seen in the kingdom.”
The facility processes 7 mb/d of crude oil, more than half of total oil production in Saudi Arabia. It removes sulfur and gas and other impurities from the oil, making it safe for transport via pipeline. It has long been high up on the list of potential targets that would send shockwaves through the oil market. In 2006, Al Qaeda led an unsuccessful attack on Abqaiq, but oil prices jumped by $3 per barrel anyway.
Source: Oil Price