Monday, September 16, 2019

Oil Price Jumps the Most Ever After Attack Cuts Saudi Supplies

Brent crude has surged the most on record as markets opened for the first time since a drone strike on Saudi Arabian oil facilities removed about 5% of global supplies.

The benchmark oil futures jumped on the open overnight in Asia as much 20% and have eased back to up $11.73 a barrel to $71.95. The early move was the biggest jump in dollar-terms since oil futures started trading in 1988.

Saudi Arabia says it can restart about 30% of the attack-halted oil production within days, but needs weeks to restore full output capacity, according to Bloomberg.

But the attack itself should come as no surprise.

I wrote in last Wednesday's EPJ Daily Alert:
Oil is falling this morning, after news reports indicated that National Security adviser John Bolton was fired after disagreeing with Trump's desire to ease Iran sanctions to get a meeting with Rouhani.
As Bloomberg reports, President Trump discussed easing sanctions on Iran to help secure a meeting with Iranian President Hassan Rouhani later this month, prompting now former National Security Advisor John Bolton to erupt, and "argue forcefully" against such a step.
An easing of sanctions would cause a short-term ding to oil prices. I would consider such a drop a buying opportunity.
That said, this is Trump we are talking about and I have only one word to set the scene: Afghanistan.
One minute he is about to have a secret meeting with the Taliban and a car bomb later it is called off.
The actors surrounding Iran are more nefarious and anything could happen.
But, as I have been pointing out here in the ALERT, oil disruption in the Middle East would provide a big boost to oil prices but the driving factor will be accelerating price inflation. 
The disruption has occurred (or at least the first one) and Secretary of State Mike Pompeo is blaming Iran. So much for talks with Rouhani.

Currently, 9% of the EPJ Model Portfolio is in a combination of oils stocks and oil ETFs.

And another 22% is in positions that will partially benefit from a climb in oil prices.

Satellite images show there were 17 points of impact during the attack in Saudi Arabia:

This was a very sophisticated hit and while the Saudis may be able to get some production back on line immediately, indications are that most of the damage will take weeks if not months to repair.

Saudi Arabia will use some of its reserves to replace lost production and the US may open its Strategic Reserves:
...but these are stop-gap measures.

My latest deep analysis of the oil situation will be in Monday's EPJ Daily Alert.


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