Saudi attack could send oil prices even higher

Global inventories cannot mitigate the impact of a 5 mmbpd loss of supply indefinitely, and the consequence of this level of shock has not yet been priced in by the oil markets

Dave Meats, CFA 17 September, 2019 | 12:37AM

The potential impact of the attack on Saudi Arabia's Abqaiq oil facility hinges on how quickly operations can be fully restored, and on whether the kingdom or its allies – including the U.S. – choose to retaliate.

The attack has choked off 5.7 million barrels of oil per day of output, which corresponds to about 6% of global production. In response, oil prices rose a little more than10% on the first trading day after the disruption was reported. That's a modest response for a disruption of this magnitude, suggesting hat the market expects it to be resolved quickly. The prevailing view in the media is generally consistent with that conclusion, although there isn't much concrete data and some reports have estimated shortages will last weeks or months. Saudi officials initially suggested one third of affected volumes could be restored within two days, and there has been no update yet.

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Dave Meats, CFA

Dave Meats, CFA  David Meats, CFA, is a senior equity analyst for Morningstar.