Smoke is seen following a fire at Aramco facility in the eastern city of Abqaiq, Saudi Arabia, September 14, 2019.
Stringer | Reuters
Oil prices jumped more than 10% after a coordinated drone attack hit the heart of Saudi Arabia’s oil industry on Saturday, forcing the kingdom to cut its oil output in half.
U.S. West Texas Intermediate crude futures popped $6.4, or 11.67%, to $61.23 per barrel. Brent crude futures soared $7.89, or 13.3% to $68.07.
Drone strikes attacked an oil processing facility at Abqaiq and the nearby Khurais oil field on Saturday, knocking out 5.7 million barrels of daily crude production or 50% of the kingdom’s oil output. Saudi Aramco, the national oil company, reportedly aims to restore about a third of its crude output, or 2 million barrels by Monday.
“While in the short term the direct physical impact on the market might be limited, this should move the market away from its bearish macroeconomic cycle and raise the risk premium in the market as funds reduce their short positions,” said Chris Midgley, global head of analytics, S&P Global Platts.
Sunday evening, President Donald Trump said he was authorizing the release of oil from the Strategic Petroleum Reserve to keep the markets “well-supplied.”
Abqaiq is the world’s largest oil processing facility and crude oil stabilization plant with a processing capacity of more than 7 million barrels per day. Khurais is the second largest oil field in the country with a capacity to pump around 1.5 million barrels per day. In August, Saudi Arabia produced 9.85 million barrels per day.
Yemen’s Houthi rebels claimed responsibility for the attack, saying it was one of their largest attacks ever inside the kingdom. The Houthis have been behind a series of attacks on Saudi pipelines, tankers and other infrastructure in the past few years.
Trump also said there is reason to believe the U.S. know the culprit and is “locked and loaded,” while waiting to get the verification from the kingdom.
The U.S. has blamed Iran for the drone strikes on those important facilities. Secretary of State Mike Pompeo said in a tweet Saturday Iran has launched an “unprecedented attack on the world’s energy supply.”
“If the Iranians have been driven to desperate measures from the loss of crude export revenues, an attack on Saudi capacity seems a likely response,” Jason Gammel, energy analyst at Jefferies, said in a note on Sunday. “The risk of wider conflict in the regions, including a Saudi or US response, will likely raise the political risk premium on crude prices by $5-10/bbl.”
The latest attack came as Saudi Arabia moves forward to take Saudi Aramco public in a major shakeup of the kingdom’s energy sector. Saudi Aramco President and CEO Amin Nasser said Saturday nobody was hurt in the attacks and work is underway to restore production. Aramco did not immediately respond to CNBC’s request for comment on Sunday.