There is only one real story this week: the Abqaiq attack was the largest supply disruption in more than 50 years and it led to the largest intraday price gain for Brent since the marker began trading in the 1980s. OilÂ closedÂ up 15 percent on Monday and opened on Tuesday trading back down.Â
More than half of Saudi production shut.Â Saudi Arabia lost 5.7 mb/d over the weekend from the attack at the Abqaiq facility, and assessments from the full impact and duration of the outage are ongoing. By Monday, it appeared that it would take at least weeks, butÂ more likely monthsÂ to bring the facility fully back online.
Quick turnaround?Â ReutersÂ reportedÂ that the repairs could be quicker than previously thought, resuming full operations in two to three weeks. Some analysts questioned that assertion, saying that it relied on optimistic assumptions. Oil prices plunged on the news. The markets are eagerly awaiting an update from the Saudi energy minister.
U.S. gasoline prices to rise by 15-30 cents.Â A supply outage anywhere affects prices everywhere. The U.S. has become the largest oil producer in the world, but that does not insulate it from major shocks to the global oil market. The Abqaiq attack could addÂ 15-30 cents to the price of a gallon of gasoline.
Saudi Aramco IPO faces questions.Â The planned domestic public offering for Saudi Aramco might be delayed in the wake of the Abqaiq attacks. Aramco is reportedly pressing to move forward with meetings with bankers about the IPO, but it could take months to restore output. The companyÂ wantedÂ to sell 1 percent of the company in an effort to raise $20 billion, but the attacks present a material risk to investors. âEven if Saudi Arabiaâs oil facilities are quickly restored, the weekendâs attacks will raise concerns of potential geopolitical risk and the level of premia required,â Monica Malik, Chief Economist at Abu Dhabi Commercial Bank, said in a research note. The attack demonstrated that more than half of Aramcoâs production can be shut off overnight because of an attack â that vulnerability needs to be priced into the companyâs valuation.
Risk premium to linger.Â Even after Abqaiq is fully repaired, the perception that Saudi oil supply is invincible has been shattered. That could leave a risk premium on crude oil for some time to come. âNo matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekendâs drone attacks on the Kingdomâs infrastructure — that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,â Citigroup Inc.âs Ed Morse wrote in a research note.
Hedge funds turn bullish on oil.Â Investors have dramatically shifted their positions to take on a more bullish tinge, a trend that began even before the Saudi attacks. AsÂ ReutersÂ reports, after piling into bearish positions in recent months, traders began to stake out a more bullish orientation, betting on a thaw in the U.S.-China trade war. The recent attacks on Saudi Arabia likely led to an overnight liquidation of shorts, as investors rushed into long bets on oil.
U.S. shale wonât spring into action.Â Despite the spike in oil prices, shale drillers likely wonât suddenly alter their plans to focus on capital discipline. âThere will be no intention to add rigs over and above our original plan,âÂ Pioneer Natural Resources (NYSE: PXD)Â Chief Executive Scott SheffieldÂ saidÂ Monday. Sheffield said that shareholders told him they would sell Pioneerâs stock if the company added rigs, according to the Wall Street Journal. Others agreed that ramping up spending is not a good idea. âIf you do, youâre going to get your head handed to you,â Kevin Hold, chief investment officer at Invesco, told the WSJ.
Shale stocks soar.Â The oil price spike saw aÂ windfall for shale companies.Â Devon Energy (NYSE: DVN)Â jumped by 12 percent;Â Whiting Petroleum (NYSE: WLL)Â skyrocketed by 49 percent;Â Pioneer (NYSE: PXD)Â was up 6 percent;Â Continental Resources (NYSE: CLR)Â was up 22 percent.
Oil price spike bad timing for the teetering economy. Higher oil prices will be a drag on an already slowing global economy. âA negative supply shock like this, when global growth is in a synchronized slowdown with many geopolitical hotspots simmering, is just what we donât need,â saidÂ Rob Subbaraman, head of global macro research at Nomura Holdings Inc.
Trump sends mixed messages on Iran.Â On Twitter, Trump said that the U.S. was âlocked & loaded,â but was awaiting direction from the Saudis. That infuriated politicians in Washington, who criticized Trump for taking orders from Riyadh. As Monday wore on, Trump seemed to back awayÂ from hawkish statements. âIâm somebody that would like not to have war,â Trump said. When asked if he pledged to protect the Saudis, Trump said: âNo, I havenât promised the Saudis that … We have to sit down with the Saudis and work something out.â He added: âThat was an attack on Saudi Arabia, and that wasnât an attack on us.â
U.S. SPR in disrepair.Â The Trump administration authorized the sale of oil from the strategic petroleum reserve in the event that emergency supplies are needed. However, the storage facilities are in poor shape, which could undercut the SPRâs efficacy, according toÂ Bloomberg. âA large portion of the SPRâs surface infrastructure has exceeded its design life and is in need of life extension,â a 2016 DOE report said.
U.S. solar market to grow by 17 percent, down from 25 percent.Â The U.S. isÂ expectedÂ to add 12.6 gigawatts this year, or an expansion of 17 percent. But that is a slower growth rate than the 25 percent previously expected. However, the five-year forecast was revised up as utilities and corporations begin to step up solar deployment.
ExxonMobil makes new Guyana discovery.Â ExxonMobil (NYSE: XOM)Â announced yet another discovery in offshore Guyana. âThis discovery helps to further inform the development of the Turbot area,âÂ saidÂ Mike Cousins, Exxon Mobil senior vice president of exploration and new ventures.
Forecasters cut oil demand.Â Goldman Sachs cut its 2019 oil demand forecast to 1 mb/d, down from 1.1 mb/d. âOur oil supply-demand outlook for 2020 calls for additional OPEC production cuts to keep inventories near normal,â Goldman analysts wrote in a note. Wood MackenzieÂ loweredÂ its forecast to just 700,000 bpd for 2019, down from 850,000 bpd previously.
Oil industry fights EVs at the state level.Â A report fromÂ PoliticoÂ finds that the oil industry has been spending heavily on lobbying state capitols to put fees on electric vehicles and to kill off investments in recharging infrastructure.