Motorists are set to be punished at the pumps in the coming weeks as the fallout from the drone attacks on two oil plants in Saudi Arabia look likely to lead to a rise in fuel prices.
The two drone strikes took 5 per cent of the global crude supply off the market, and led to oil prices experiencing their sharpest single-day rise in history.
Ten drones attacked an oil processing facility at Abqaiq and the nearby Khurais oil field on Saturday, causing a loss of 5.7 million barrels of crude production a day or 50 per cent of the kingdom’s oil output.
While there is no official assessment of how long the attacks will disrupt production for, sources have told news agency Reuters that it could take months for the plants to return to normal levels of production.
Some experts have predicted the attacks could lead to the oil price hitting $100 (£80) per barrel if the company cannot return to full production quickly.
“This is a big deal,” said Andrew Lipow, president of Lipow Oil Associates, adding this could translate to pump prices rising 5p per litre in the coming weeks.
Petrol station owners buy fuel weeks in advance, so any price rises are unlikely to have an immediate impact, but if the damage does take months to repair motorists are expected to see sharp price rises in the coming weeks.
Trump blames Iran
Immediately after the attacks, the Brent crude price per barrel rocketed 20 per cent, but later fell after US President Trump said the US would release some of its reserves to ease supply.
Mr Trump has blamed Iran for the attacks, and Yeman’s Iran-backed Houthi rebels, who have been engaged in a long running conflict with the Saudi-backed Yemeni government, have claimed responsibility.
“If Abqaiq kills talks of easing sanctions [in Yeman] and the discussion turns to retaliation and escalation, I think oil could easily trade higher by $10 or more,” said Bob McNally, president at Rapidan Energy Group.”
Foreign Secretary Dominic Raab has called the attacks “despicable”, but was cautious about whether the UK could take part in any military response.
He told Sky News: “The attack on the Aramco installations was a wanton violation of international law. It’s despicable. We stand firmly in support of our Saudi partners and the other international players and countries in the region.
Raab says it was “not entirely clear who is responsible”, but he hopes to get a “very clear picture” shortly.
Global economic downturn
There have also been warnings that the attacks could spark a global economic downturn.
Ranko Berich, head of market analysis at Monex Europe, said: “The weekend’s attacks in Saudi Arabia will have two consequences for financial markets and the global economy: the immediate oil price shock, which has already hit, and the longer-term costs of increased tensions or even a possible outbreak of conflict in the Persian Gulf.
“The size of the initial shock to oil prices was immense. Spot prices have surged by amounts unprecedented since the 1990 Iraq invasion of Kuwait, while Brent crude oil futures recorded their largest intraday surge since trading began in 1988, although since then the initial knee jerk surge has been pared back.”
Craig Erlam, senior market analyst at trading firm OANDA, added: “The attack was as severe as it was unexpected but that’s not the worst thing about it. Saudi Arabia believes a significant proportion of the outages can be back online in a few days while Trump also approved release of supplies from the Strategic Petroleum Reserve to ensure the market remains well surprised.
“None of this should make us feel relaxed about the potential for further attacks though and the longer-term implications on the oil market. Spikes in oil prices when the global economy is already flirting with the idea of recession is not ideal and, if repeated and sustained, could ultimately be what tips us over the edge.”
The attacks also hit shares on the London Stock Exchange this morning. The FTSE 100 was down 21 points at 7,346 in early trading, even though the shares in oil companies BP and Shell are up more than 3 per cent. Among the fallers were companies dependent on oil such as British Airways-owner IAG and cruise operator Carnival.