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Peak Oil Uncertainty: Crude’s Record-Setting Jump Roils Global Markets—and the Worst May Be Yet to Come


Crude oil prices soared and markets fell on Monday, and now there’s talk of what seemed impossible just last week—oil prices topping $75 a barrel. Nobody knows for sure how bad the prospect of suddenly expensive crude could get for a global economy that was already sputtering.

That’s the upshot from this weekend’s drone attack on Abqaiq, the largest oil processing facility on the planet, located deep in the heart of Saudi Arabia’s energy industry. The sneak attack forced Saudi Aramco to shut down 5.7 million barrels per day (bpd) of crude production, “equating to 7% of the current global crude and condensate production,” Rystad Energy said in a research note on Monday.

“The world is not even close to being able to replace more than 5 million bpd day of Saudi Arabian exports,” Bjørnar Tonhaugen, head of oil market research at Rystad Energy, told Fortune. “This is an attack on the blood oil system of Saudi Arabia. It’s very significant.”

Rystad had calculated on Sunday that crude prices would spike as much as $10 a barrel—and sure enough, at one point, it did—as the world awaits how quickly Saudi Aramco can get back to full production. It’s this waiting game that’s unnerving markets.

At the start of the trading day in Asia, crude prices soared by an unprecedented clip, up nearly 20% at one point, before coming back down to earth. Brent crude topped $65 per barrel, its highest level in two months. Some analysts on Monday began to speculate that crude oil prices could rise to above $70-$80 per barrel if it takes Saudi Aramco weeks to get the operation running at normal capacity again. At that stage, consumers would feel the pain, and global economic growth, already in doubt, could falter.

Furthermore, if the saga were to erupt into open conflict, dragging Saudi Arabia and its allies into a series of retaliatory strikes with Saturday’s attackers, Yemen’s Houthi rebels, and/or with the Houthi’s principal ally, Iran, it could send crude prices climbing even higher, to above $90 per barrel.

Either way, the oil market has entered a new phase. Oil prices were trending down in recent months as the focus was on the effects of the U.S.-China trade war, and the shrinking global demand from slowing economies. Now, like the flip of a switch, it’s all about geopolitical risks in the region, and dealing with a mammoth supply shock the magnitude of which the markets haven’t seen since the era of Saddam Hussein sending tanks rolling into Kuwait in 1990.

“Slower global growth was beginning to act as a drag on oil prices, but the risk premium goes the other way and that in turn is another drag on global growth,” said Kit Juckes, global fixed income strategist at Societe Generale.

The impact on the currency and equities markets was acute. The safe-harbor dollar jumped. Europe’s airline stocks, meanwhile, were among the biggest losers on Monday. Ryanair Holdings and Air France both dropped more than 4 percent as markets opened. Energy stocks, meanwhile, were out of the gates strong, with BP Plc and Royal Dutch Shell leading the way.

But energy analysts were mainly focused on what the disruption would mean for Saudi Aramco and its much-anticipated IPO. The consensus: not good.


2 Comments on "Peak Oil Uncertainty: Crude’s Record-Setting Jump Roils Global Markets—and the Worst May Be Yet to Come"

  1. Chrome Mags on Tue, 17th Sep 2019 1:20 am 

    “Nobody knows for sure how bad the prospect of suddenly expensive crude could get for a global economy that was already sputtering.”

    I figure at this point it’s really hard to know how the world economy is actually doing because stats lying is likely rampant. So even if oil prices went up and recession ensued, would we even know it? I’m not sure we would except how it affects our pocket book.

    Also, since the 08 mortgage meltdown, we are in a new era in which CB intervention is applied when there are any discernible negative numbers to jolt the sucker back into coherence.

    The next step down may be such a steep drop that recession fails to describe it. More like ‘Palpatative Cognition Distress’ in which the financial losses are so big people go into psychological shock and start talking in tongues, driving aimlessly out into the countryside.

    “Hey Johnny Rob, that’s at least the 50th BMW I’ve seen today. What’s going on?”

    “Maybe it’s not just us farmers having trouble.”

  2. makati1 on Tue, 17th Sep 2019 1:56 am 

    Chrome, I think the next drop will be a killer, not just crippling.

    Yes, the “numbers” are all cooked so much they are nothing but mush. As you said, the only way we will know what is happening is when it personally affect us.

    We can look around, but that only tells us what is obvious in our own neighborhood, and even that is still a lot of smoke and mirrors. In Amerika, the ability to pretend all is well is coming to an end. When the credit is maxed and the jobs disappear … reality will be hitting everyone between the eyes. I hope you are prepared. Time is getting short.

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