An extended Saudi oil outage could push Brent crude prices north of $75 per barrel as the historic attack on the country's processing plant disrupts one of the globe's largest energy supply chains, Goldman Sachs warned clients.
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," according to Goldman's global head of commodities research Jeffrey Currie and senior commodity strategist Damien Courvalin.
"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 Sunday.
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.
Brent crude futures on Monday rose $6.21 to $66.43, about 10%; West Texas Intermediate futures climbed $5.19 to 60.04, or 9.4%. Earlier in the session, the surge in Brent prices represented the largest one-day move on record.
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 situation could be much worse.
"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," Currie and Courvalin wrote. "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."
In response to the weekend attack and in expectation of a spike in oil prices, President Donald Trump authorized 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.