This weekend saw what might be one of the largest game changers in oil markets for some time. With several drones attacking Saudi Arabia/Aramco’s oil processing nerve center, it is estimated that this will reduce their output in the immediate by 50%. The targets that were struck by themselves contribute to almost 10% of the daily world output. The attack was not insignificant, and the timing certainly was strategic as the leadership is fairly new at Armco (the nationalized oil company).
The “who done it” question may take some time and intelligence to unfold as the complicated relationships between various terrorist and clan groups cloud who all the actors are. At this point Yemen has been noted as the launch point, though Iran is suspect in providing tech and and the machinery at the very least. With Saudi Arabia and Iran both being OPEC members, this is just another twist as the resulting price spike in worldwide crude (possibly higher than $100 a barrel) will be in contrast to the expectation this past summer that Iran would plummet world crude prices to around $35 a barrel if selling quantity to China.
So with the leaves nearly off the trees and temperatures dipping below freezing in parts of Alaska, how does this war news from the Middle East effect us? When the markets open today (in other parts of the world) crude may be up by as much as 10% right off the bat. When U.S. markets open they will be responsive and it might be that this early week we see some increases in refined petrol products “at the pump”, so to speak. With heating oil season coming into its primetime of demand for residential purchases, this may be the time to fill up. Some folks like to wait until the snow flies, yet by then you may see a double digit decimal rise in the prices (if not triple digit).
World markets adjust over time to a new equilibrium as damage is assessed in an incident such as Saudi Arabia has experienced this weekend (and when major nations account for changes in their reserves). Yet with disrupting events springing up more frequently, such as attacks on tankers and flaring of world tensions this past summer, it is hard to know when we have “leveled out” in terms of market supply being assessed. ——AN———