Brent oil spiked to $71.62 a barrel and WTI to $63.47 a barrel. Though, both have corrected from their highs but still are trading about 10% higher than the previous close. In Domestic Exchange Mcx, Oil prices are trading around 4270, up about 9% from its previous close.

Spike in the prices came following a drone attack on Saudi’s oil facilities, which shut half of the country’s production over the weekend.   This attack has resulted in the single worse disruption in oil markets, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990

Drone attacked the oil processing facility at Abqaiq and the nearby Khurais, the world’s key oil processing field, sparking a massive fire at a crude processing plant.

At one point in time oil was up by about 20%, its biggest single-day jump in 28-Year, but prices trimmed almost half of the gains after US President announced the release of oil from SPR (Strategic Petroleum Reserve) to calm down the heating markets’ nerve.

Moreover, Saudi Aramco, the largest oil giant in Saudi Arabia, is planning to resume a third of its crude oil production by today’s end but we need to see Aramco’s statement regarding the same.

How long the Saudi outage will last or by what time Saudi’s operations will return to normalcy will decide the further price trajectory of the oil.   If it gets resolved in a week's time or so then prices will of late turn negative on the resumption of production but if it lasts for a month or so then certainly an extension of a current explosive price move will continue in the weeks to come.  Moreover, how much quantum of production will remain off-market will also be taken into consideration and have a material impact on the prices. 

Iran backed Houthi rebels have taken responsibility for the strike and said that more can be expected in the future. As we all know a Saudi-led coalition has been at war with the Houthi movement in Yemen since March 2015. More strikes will add more premia to the price. We need to see how Saudi responds to it to get further directional clarity.

 

Column by Tarun Satsangi for TarunSatsangi.com