Saudi Arabia, the world's largest oil exporter, had cut back on production of crude and other energy products as part of an OPEC effort to boost prices. The kingdom produces approximately 10 percent of the total global supply of 100 million barrels per day.
In 2019, many geopolitical incidents like drone attack by Iran, attacks on tankers instantly boosted crude prices, however, most of the times prices get back to normal as the market is well supplied amid slow down concern and continuous downward revision of GDP.
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Earlier this month, Saudi Arabia, the world's largest oil exporter, had cut back on production of crude and other energy products as part of an OPEC effort to boost prices. The kingdom produces approximately 10 percent of the total global supply of 100 million barrels per day.
State energy producer Saudi Aramco lost about 5.7 million barrels per day of output after 10 unmanned drones struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field.
The recent attack Saudi Arabian oil facility removed about 5 percent of global supplies has given shook the markets across the world with the Brent crude prices jumping to near $72 from the low of $59 per barrel. Meanwhile, London’s Brent futures jumped also almost $12 in the seconds after the open, the biggest intraday advance in dollar terms since they were launched in 1988 whereas WTI saw a surge of around $8, said a report by SMC Global.
Crude prices have reacted differently to different geopolitical tensions. While the prices rose over $75 per barrel during the Iran-Iraq war in the 1980s, it fell below $25 per barrel after Saudi Arabia abandoned its swing producer role post-1985. The prices rose to its highest level of $125 per dollar during the global financial collapse in 2008.
For oil markets, it’s the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbour, the report stated. As per an official of Saudi Arabia, it can restart a significant volume of the halted oil production within days but can't dent the possibilities to unable to fulfil contracts on some international shipment if it takes longer to resume the oil production in full capacity.
Furthermore, US President Donald Trump has declared that he has authorized the release of oil from its reserve to keep oil prices under control, which may help keep the crude prices in a range.
"If we see the overall growth story, it is not painting the rosy picture though recent dropdown and geopolitical tensions will cushion up the prices," the report added.
Throughout history, various events have seen major oil disruptions. While the Saudi drone strike saw the maximum disruption of oil (about 5.7 million barrels), the Iranian Revolution in 1978-1979 saw a disruption of 5.6 million barrels.
OPEC has also delivered a downbeat oil market outlook for the rest of 2019, as economic growth slows. The bearish outlook due to slowing economies amid the US-China trade dispute and Brexit could press the case for OPEC and allies including Russia to maintain a policy of cutting output to support prices, the brokerage explained, further adding that investors are worried about the prospects for global oil demand especially amid trade tensions between the US and China, the world’s two biggest economies and oil users.