Attacks on Saudi Arabia’s oil infrastructure sent the price of Brent crude surging by more than $12 a barrel, the biggest increase in more than 30 years and fueling fears for the global economy. (Brent crude was trading at $68.97 at 2:20 p.m. Eastern time.)
“It is the biggest shock to the oil markets since [Hurricane] Katrina. And like Katrina it will likely haunt us for months, at least weeks,” Tom Kloza, chief oil analyst for the Oil Price Information Service, said.
The energy price shock was felt through global markets. Shares in energy companies rose on the expectation of higher profits and across Europe stock indexes fell due to fears of geopolitical tensions.
The shock also triggered a selloff in the bond market, as the yield on the ten-year Treasury note fell 5.1 basis points.
Roughly half of Saudi Arabia’s oil capacity could have been disrupted in the attacks. Over the weekend, Houthi rebels claimed responsibility for the attacks, saying they used drones on Saudi Aramco oil facilities in retaliation for the Saudi military’s campaign in Yemen.
However, U.S. security officials have said there are indications Iran was responsible for the attach and that some cruise missiles may have been used.
Analysts at Goldman Sachs said Brent prices would quickly surpass $75 if the outage was announced to last more than six weeks.
“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,” Jeffrey Currie and Damien Courvalin said.
The attacks could help U.S. shale producers while threatening a global economy that shows signs of faltering.
An energy crisis in the Middle East could help U.S. shale producers, but threatens to tip the faltering global economy into a recession.
“The market’s reaction to Saudi Arabia’s importance, in the new era of U.S. shale, will now be put to the test,” said Bjørnar Tonhaugen, the head of oil markets at Rystad Energy.
Artur Baluszynski, the head of research at Henderson Rowe, said European economies could be hurt by higher energy prices, but going forward their leading position in renewables would be accelerated by higher costs for fossil fuels.