Crude oil prices had a wild week due to the attacks on Saudi Arabia. While we have released several reports examining the damage done and the big-picture impact on prices and flows (see: Attack on Saudi Arabia: What We Know So Far, Attack on Saudi Arabia: Update, Drone Attack in Saudi Arabia Coincides with a Sweetening Global Crude Market, and Abqaiq Attack Has Small Fundamental Effect on NGL and Natural Gas) we thought it prudent to review what happened in spot prices as the week draws to a close.
Brent crude ended the week at $64.29/bbl, $7.66/bbl lower than its high of $71.95 reached on Monday. For the week, Brent spot prices ended up averaging approximately $65.17/bbl, roughly a dollar above our Monday morning forecast. Intraday spreads tightened throughout the week as volatility due to concerns about supply and a potential military response abated.
Saudi Aramco is turning to internally held storage to meet all export obligations, and expects normal operations to quickly resume at the Abqaiq facility. The ability of Saudi Aramco to meet demand out of storage, coupled with a persistent global crude oversupply eased fears of a supply-crunch. Price fell significantly after Saudi Aramco’s announcement on Tuesday that repairs would be essentially completed by the end of September.
Investigations by Saudi Arabia, the United States and the United Nations are still on-going and the exact origin of the attack or who was responsible have not been confirmed. However, with Saudi Arabia and the United States both taking a more patient and measured tone when discussing possible responses, fears of a sudden escalation in regional hostilities have fallen.
Assurances that repairs are well underway and no export cargos will be missed, and a belief that any retaliatory actions taken are likely to be measured means that the additional geopolitical risk premium is likely to trend in the $3-5/bbl range in the weeks ahead.
Geopolitical Unrest – Positive
Global Economy - Negative
Oil Supply – Positive
Oil Demand – Neutral