Investing.com -- Global oil prices vacillated Monday before resuming their rally as Saudi Arabia updated the world on the damage to key facilities suffered in missile attacks at the weekend.
By 10 AM ET (1400 GMT), the U.S. benchmark blend West Texas Intermediate futures were up 9.1% at $60.07 a barrel, having earlier hit a four-month high of $63.47 a barrel. The international benchmark Brent was at $66.51 a barrel, up 10.5% from immediately before the attacks.
The attacks, which took supply totalling some 5.7 million barrels a day out of action, have had a twofold impact on prices. In addition to concerns about future shortfalls in the physical market, traders have had to build in higher geopolitical risk premiums into prices to protect themselves against the risk of further escalation.
Escalation now looks virtually certain after Saudi officials corroborated U.S. claims that the weapons used in the attacks were Iranian and not – as earlier reported – launched by Iranian-backed Houthi rebels in Yemen.
President Donald Trump had indicated over the weekend that U.S. forces were prepared to strike Iran directly in retaliation, pending confirmation of its intelligence by Saudi Arabia.
Aside from the risk of escalation, the actual disruption to the physical market may be worse and longer than first thought.
Reports by Dow Jones and Bloomberg cited people familiar with the matter as saying that officials at Saudi Aramco were no longer confident of restoring the damaged capacity quickly, having initially said they would replace one-third of the lost output already by Monday.
That’s important because world crude stocks, while high, don’t offer enough of a buffer to make up for the loss of so much Saudi capacity over a protracted length of time.
“The world is not even close to being able to replace more than 5 million bpd day of Saudi Arabian exports,” Bjørnar Tonhaugen, head of oil market research at Rystad Energy, said in a note to clients. “The longer the processing facility remains disrupted, the larger the potential impact on actual crude flows will be.”
Tonhaugen noted that Saudi Arabia currently has the equivalent of some 26 days of its exports in storage around the world, much of which is outside the Persian Gulf and therefore safe from any likely intervention by Iran or its proxies in Yemen.