Attacks In Saudi Arabia: Positive For Oil, Harmful To Global Markets
Alexander Kuptsikevich | Sep 16, 2019 07:19AM ET
Brent opened the week with a price spike of more than 20% on reports of an attack on a significant oilfield in Saudi Arabia. Oil has made the sharpest intraday spike since the 1991 Gulf War. The oil price jump is caused by the initial fears around further oil supplies because the attack led to a reduction in production by 5.7 million barrels per day. This is almost half of the total output of the country and about 5% of the global output, and it may take weeks to return to normal levels.
It is unlikely that such growth will be sustainable. Saudi Arabia has impressive reserves to compensate for the decline in production. Besides, the U.S. also announced its readiness to use strategic reserves in the event of supply disruptions. This event is unlikely to be a critical moment for OPEC or to have a long-term impact on the oil prospects. However, we should expect that for some time, the geopolitical risks premium in this region will be increased, breaking the downward trend of black gold
Strange as it may seem, Saudi Arabia may benefit from this incident. At the moment, it is not clear whether the attack came from Iran, Yemen, or some third party. In any case, the Saudis may get the support of the international community in an attempt to weaken one of their longstanding rivals.
Moreover, the rise in oil prices may be handy for the Saudi Arabian budget. Let us mention that the region is just preparing to sell some shares in the oil-producing corporation Saudi Aramco. Due to that, higher Brent prices may have a positive impact on the estimates of the oil-producing giant. Moreover, due to the impressive reserves, this may not affect sales, but increase revenues and profits due to higher oil prices in the short term.
The oil could return to investors' radar now, becoming sensitive to positive news. In previous days, when the world markets were growing up due to trade optimism, Brent was declining.
Get The News You Want
News about expensive oil is contradictory for the world markets. Periods of increased demand often go hand by hand with the acceleration of the global economy. However, after a certain level, expensive energy could slow down markets' growth. Therefore, a continuous Oil uptrend above $100 per barrel may become not only an obstacle but also a real price shock for investors.
The world's largest economies - the United States, China, and the Euro area as a whole - are the biggest energy consumers. So their markets may be under pressure if the jump in oil prices sustained. Global markets opened the week with a decline and gradually recouped as oil prices decrease somewhat from the levels set at the opening of the day.
The FxPro Analyst Team
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.