AN extended Saudi oil outage could push Brent crude prices to $75 per barrel, American multinational investment bank and financial services firm, Goldman Sachs warned clients on Monday.
It said the historic attack on the country’s processing plant has disrupted one of the world’s largest energy supply chains.
Brent crude futures on Monday rose $6.21 to $66.43, about 10per cent; West Texas Intermediate futures climbed $5.19 to 60.04, or 9.4per cent. Earlier in the session, the surge in Brent prices represented the largest one-day move on record.
Continued surge in crude prices is good for Nigeria’s N8.91 trillion naira ($29 billion) budget implementation.
The budget was based on estimated crude production of 2.3 million barrels a day (bpd), $60 per barrel benchmark.
It was also based on an exchange rate of N305 naira to the dollar.
Nigeria, Africa’s largest oil producer and member, Organisation of Petroleum Exporting Countries (OPEC) grew its economy by 1.93 per cent last year, its fastest pace since a recession two years earlier, data showed, while inflation which has been in double digits for three years, fell to 11.22 percent in June.
Saturday’s attack was “a historically large disruption on critical oil infrastructure and these events represent a sharp escalation in threats to global supply with risks of further attacks,” its Global Head of Commodities Research, Jeffrey Currie and Senior Commodity Strategist Damien Courvalin, said in a note.
“Should the current level of outage be announced to last for more than six weeks, we expect Brent prices to quickly rally above $75/bbl,” they said in a note.
Goldman’s warning came after weekend strikes on the heart of Saudi Arabian oil production facilities in Abqaiq and Khurais claimed by Yemen’s Houthi rebels. Saudi Aramco, the country’s large state-backed oil company, said Sunday it was hoping to restore on Monday about one-third of its crude output that was disrupted. The drone attacks eliminated 5.7 million barrels of production over the weekend.
Oil prices rise will hinge on how long it will take Aramco to fully restore production, the Goldman team said. A very short outage, for example, would likely drive prices higher to reflect growing tensions in the Middle East, but only tick up $3–$5 per barrel.
“The magnitude of such a price rally is difficult to estimate in the absence of official comments on the timeline and scale of production losses. An extreme net outage of a 4 mb/d for more than three months would likely bring prices above $75/bbl to trigger both large shale supply and demand responses,”they wrote.
In response to the attack and in expectation of a spike in oil prices, President Donald Trump authorised the release of oil from the U.S. Strategic Petroleum Reserve if needed to keep the market well-supplied.
“These events represent a sharp escalation in threats to global oil supply with previous drone attacks mostly intercepted, evidence that Saudi Aramco’s strongly guarded oil facility – Abqaiq – is ultimately vulnerable, a risk of further attacks (the Shaybah oilfield (1 mb/d) was unsuccessfully attacked last month), as well as potential for further escalation in the region with the US Secretary of State blaming Iran for these attacks,” Goldman Sachs wrote.