Regional tensions and its effects on the global oil industry

Regional tensions in the Middle East started a long time ago. However, the latest incident once more highlighted that regional stability remains fragile. On Saturday, drones attacked oil processing plant of the Saudi Aramco. It is worth mentioning that the plant in Abqaiq is the largest one operated by Saudi Aramco. Moreover, drones also targeted the Khurais oilfield.

These attacks shocked the global oil sector. The attack on the leading oil exporter’s biggest oil processing plant is a huge problem. It is not surprising that oil prices increased on Monday.

It was the most significant oil price surge since 1991. The oil prices increased by more than 19% before starting to decline. It is important to mention that the last time a similar situation was in 28 years ago. This fact underlines the severity of this incident to the global oil sector. Oil is one of the most significant commodities, and its price has a direct influence on daily life.

The price of Brent crude future rose by $6.21 or about 10% to $66.43. The price of West Texas Intermediate increased by $5.19 or 9.4% to $60.04. The attack on the world’s oil exporter will affect not only the oil prices but as well as the market share of Saudi Arabia.

The oil sector and regional rivals

Saudi Arabia and Iran, both of them, are part of OPEC. Nevertheless, it didn’t stop to engage in activities which might have a negative impact on the global oil industry. The attacks on Saudi Aramco’s facilitates in not an exception.

Houthi rebels claimed responsibility of the attack. It is worth mentioning that Iran strongly supports Houthi movements which further complicates this incident. Even though Houthi rebels claimed the responsibility U.S. and its allies are suspicious about this fact. The U.S. President did not mention Iran but made it clear that the U.S. is ready to respond with military force.

According to U.S. officials attack originated from the opposite direction. They even mentioned Iran and added that there was a chance that attacks involved cruise missiles.

This incident will influence the oil sector for weeks to come, maybe even for a couple of months. It is important to mention due to the attack Saudi has to decrease its output by 5.7 million barrels per day. Another interesting fact is that Saudi Arabia has an opportunity to affect the oil industry by increasing or reducing oil production. The latest incident is a serious blow for the Saudi Aramco.

Global emergency stockpiles

Donald Trump decided to use oil from the U.S. Strategic Petroleum Reserve (SPR) if there is a need in additional supplies. The total amount of U.S. strategic supplies are more than 600 million barrels. This is enough to meet the demand of the local market for a month.

Moreover, the U.S. can use oil from commercial storage. It means that the U.S. has access to additional 461.8 million barrels.

Saudi Arabia is going to use the oil which it has in storage to solve the problems caused the attack.

The oil prices rose on Monday. The incident on the world’s biggest oil processing plant is out of operation for an unspecified time. It means that Brent, as well as WTI crude futures, might become even more expensive.