Attack on Saudi Arabian facilities causes oil price to spike

AdobeStock 330740958Tensions have flared in Yemen between the Houthi rebels and the Saudi-led coalition

On 7 March Houthi rebels launched an attack, targeting one of the petroleum tank farms at Ras Tanura port, near the city of Dammam and Saudi Aramco facilities in Dhahran. While the group also claimed they had targeted other sites at Asir and Jazan with drones and ballistic missiles, Saudi Arabian authorities have only confirmed the attack at Ras Tanura and the Dharan facilities which, in a statement released on the Saudi Press Agency, they “strongly denounced and condemned.” It follows claims from the Houthi movement on 4 March that it had fired a missiles at an Aramco petroleum products distribution plant in Jeddah, hitting a storage tank, which has not been confirmed by Saudi Aramco or the Saudi Arabian authorities.

A spokesman from the Ministry of Energy reported there were no casualties or property loss from either attack, however shrapnel from a ballistic missile fell near Saudi Aramco’s residential area in the city of Dharan, where thousands of the company’s employees and their families live.

Despite minimal damage reported, the attack has still caused disruption in the oil and gas market with Brent crude, the international standard, rising to US$70.47 per barrel (the highest in over a year) and Benchmark U.S crude oil rising 1.7% to US$67.19 per barrel. 

While pointing at the news from the Middle East as one of the reasons for this, Rystad Energy have also suggested that the US Senate’s decision to pass the US$1.9trn stimulus bill and growing faith that more spending will soon be pouring into the market have also driven this rise in price. The US demand for oil is one of the largest in the world and as the country moves out from lockdowns and industrial and social life picks up with the introduction of the stimulus bill this will drive the demand for oil as well. 

Additionally, Rystad Energy also pointed at the agreement by OPEC+ to roll over the existing production cuts as a driver for the price fever staying high. This decision to hold back more oil production will force a tight oil market with stock draws potentially accelerating towards 1.3mnbpd in April and 2.5mnbpd is supply restraint continues into May.

After settling at a crippling US$40 per barrel during the pandemic, rising above the US$70 threshold is a milestone making the road to recovery appear more tangible. While the market is used to fluctuations around oil price and optimism is firmly on the cautious side, Wood Mackenzie has projected that oil prices will trade in the US$70-US$75 range in April with global demand increasing as vaccines are distributed and lockdowns are lifted across the globe, a hopeful sign that normality is starting to return.

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