The oil risk premium is back.
Earlier, oil prices were up as much as 18% after oil processing fields in Saudi Arabia were attacked, knocking out 5.7 million barrels a day of crude production – or nearly 5% of global daily oil production. Unfortunately, Yemen’s Houthis say Saudi oil facilities remain targets.
“We assure the Saudi regime that our long hand can reach wherever we want, and whenever we want,” Houthi spokesman Yahya Saree said, as quoted by Bloomberg. “Wewarn companies and foreigners not to be present in the facilities that were hit in the strikes because they are still within range and may be targeted at any moment.”
All of this only raises the threat to global oil supply with risks of further attacks.
The scale of the oil strikes “will encourage markets to re-examine the need for considering an oil geopolitical risk premium,” analysts at the Eurasia Group said, as quoted by CNBC. “A small $2-$3 premium would emerge if the damage appears to be an issue that can be resolved quickly, and $10 if the damage to Aramco’s facilities is significant leasing to prolonged supply outages.”
Worse, some analysts believe oil could hit $100 if the Saudis fail to restore oil supply quickly.
President Trump Orders Strategic Release
As a result of the supply outage, the U.S. just authorized the release of crude from the SPR, or the Strategic Petroleum Reserve to offset the expected loss of global supply.
“Based on the attack on Saudi Arabia, which may have an impact on oil prices, I have authorized the release of oil from the Strategic Petroleum Reserve, if needed, in a to-be determined amount sufficient to keep the markets well supplies,” Trump tweeted. “I have also informed all appropriate agencies to expedite approvals of the oil pipelines currently in the permitting process in Texas and various other states.”
The U.S. is Locked and Loaded
This could raise the possibility of war with Iran.
At the moment, Trump is noting the U.S. is “locked and loaded,” waiting on the Saudis to determine who launched the strikes before taking next steps. “There is reason to believe that we know the culprit, are locked and loaded depending on verification,” Trump also tweeted.
As a result of the weekend attack, oil stocks are skyrocketing this morning.
Unfortunately, airline, cruise ship, and retail stocks are being pulled down, as crude explodes.