Why The Attacks In Saudi Arabia Are A Big Deal

As Reuters recently pointed out, the physical impact won’t be felt for a few weeks. For now, crude oil inventories will be drawn down. Oil importers will scramble to secure supplies. Prices were certain to jump, and indeed they did. In the first session following the attacks, crude oil prices registered the largest intra-day jump in history. 

But Saudi promised to quickly restore the lost production, and that has seemed to pacify the oil markets.

This incident will certainly remind us of the vulnerability of global oil supplies. It should reintroduce a fear premium back into the oil market. The ultimate impact on the price of oil will be determined by how quickly Saudi can return production to normal. If such a significant outage like this was extended, it’s not out of the question that oil prices would make another run at $100 a barrel. But if Saudi gets production back quickly, the market will probably quickly forget about this until the next incident. We just don’t have any historical experience to draw on, because the world has never seen an outage this large.

Oil producers that can will raise production. U.S. producers will especially benefit from this sudden global interruption. Shares of many U.S. oil companies are trading up double-digits, as they suddenly face the prospects for much better oil prices.

But make no mistake. Even though most people don’t pay much attention to geopolitical events, when it comes to the oil markets, this is a really big deal. It may have enormous implications for the future, as it may just be the beginning of a serious escalation involving the Middle East’s most important oil producer. 

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