September 14th, 2019 may well become an infamous date in energy history as it could mark the day Saudi Arabia and OPEC definitively lost their dominance as the globe’s most powerful oil cartel.
Reports indicate that 10 unmanned aerial vehicles (drones) hit the world’s largest crude-processing facility in Saudi Arabia as well as targets in their second-biggest producing oilfield. Brent Crude prices spiked 19.5% Monday, settling with an 8.5% gain. WTI was trading 8% higher.
Fully half of Saudi Arabia’s total oil production capabilities (5.7 million barrels per day), representing 5% of total global production, were knocked offline by the well-coordinated and highly sophisticated attack in the early morning hours. According a Forbes article on the attack, “the shale oil boom in the U.S. added 5.9 million BPD of oil to the world's oil markets. That means that the attacks in Saudi Arabia have knocked offline the equivalent of the entire U.S. shale boom.”
Yemeni based and Iran-backed Houthi rebels claimed responsibility but the United States is clearly pinning the blame on Iran. Saudi Arabia has been engaged in military action against the Houthi since 2015 when they overthrew Yemen’s President. Though the international community does not recognize the Houthis as Yemen’s rightful rulers, it has also condemned Saudi Arabia’s actions in Yemen where tens of thousands of people have been killed.
Since the conflict began, Houthi rebels have attacked Saudi infrastructure and sea-borne tankers but never with the success it saw on Saturday.
What This Means for the U.S.
Literally, the two days before the attack, the global oil story was oversupply and the real possibility that WTI prices could slide below $40 by the winter. It is believed that if the Saudi’s cannot rapidly repair the damage done during the attack, oil prices could reasonably hit $80+ a barrel in weeks.
Though most certainly any attack is a terrible thing, the fact stands that it serves to bolster U.S. oil export interests. Just Thursday of last week (Sept 12, 2019) it was reported that the U.S. “briefly overtook” Saudi Arabia as the world’s number one oil exporter in June exporting an estimated 3.1 m/bpd. This attack will almost certainly place the U.S. in that top slot again in the near term, if not indefinitely.
The attack will also bolster Iran’s position as demand for its heavy crude will increase in the region. As it is widely believed Iran was ultimately behind the attacks, the tensions between the U.S. and Iran will continue to increase after a summer of war-like actions.