International oil prices are expected to rise sharply when markets open on Monday, following Saturday’s drone attacks on vital oil installations in Saudi Arabia. Analysts expect that oIl, which was trading at around US$60 a barrel on Saturday, could soar to as high as $80 per barrel in a knee-jerk response by market to the attacks.
Saudi Arabia confirmed the attacks and added that the fires which had ensued had since been brought under control, and there had been no casualties. The Kingdom acknowledged that the attack had crippled its production capacity to 5.7 million barrels per day, nearly half its normal daily output. However, it is unlikely that the attack would significantly dent Saudi exports as the Kingdom could temporarily compensate for any production loss by drawing from its huge storage facilities.
Houthi militia in Yemen who have been fighting a Saudi-led coalition, supported by the US and other Western allies, for over two years, claimed responsibility for the attack. A spokesperson for the Houthis said that 10 of their drones had been involved in the concerted attack on the Abqaiq oil processing plant and the Al-Khurais oilfield, which belongs to Aramco, the state-owned oil giant.
Abqaiq processing plant located about 60km south-west of Dhahran in Saudi Arabia’s Eastern Province, is the Kingdom’s largest facility with the capacity to process around 7 percent of the global oil supply. Khurais oilfield, which is the Kingdom’s second largest, lies around 200km further south-west and produces around 1 percent of the world’s oil.
If the attacks are confirmed as having been carried out by Houthi drones from Yemen, this would mark a new phase in the regional conflict, as the two facilities hit are located over 700km from the Yemeni border. The ability of the drones to cover this vast distance undetected by the sophisticated Western surveillance equipment in Saudi Arabia could raise questions about the defense capabilities of the Kingdom, and more importantly, its ability to protect vital global oil supplies.
Nevertheless, contrary to expectations, it is unlikely that oil prices could soar very high or remain high for an extended period, as demand for global oil currently remains very weak. Moreover, the Department of Energy in the United States has signalled its willingness to step in and supply oil markets from its own reserve stockpile in the event of any shortfall in global supplies.