The Daily Update - Locked and Loaded

Earlier today, Brent had its biggest intraday jump since futures began trading in 1988 after Houthi rebels claimed responsibility for multiple attacks on Saudi Arabian oil infrastructures on Saturday. At one point Brent was trading at more than $71 a barrel, an initial surge of almost 20%.  The resulting impact of the attacks is said to be 58% of current Saudi oil production, 18% of natural gas and 50% of ethane and NGLs. One expert said, the attack ‘effectively wipe out the world’s spare oil capacity’.

The drone attacks at Abqaiq and the nearby Khurais oil field knocked out 5.7 million barrels of daily crude production, roughly 5% of the global daily oil production. Saudi Aramco said it aims to restore about 2 million barrels of production by the end of today and a return to full processing capacity in 10 days in a gradual fashion. It has been reported that Aramco has approximately 35-40 days of supply to meet ongoing contractual obligations.

The US administration has been quick to point the finger for the attack at Iran, with Mike Pompeo, the Secretary of State, Tweeting that Saudi’s close neighbour had launched an ‘unprecedented’ attack on the world’s energy supply. Trump was equally forthright, announcing ‘Saudi Arabia oil supply was attacked. There is reason to believe that we know the culprit, but are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!’. Trump also authorised the release of oil from the US’ strategic petroleum reserve yesterday saying that the oil would be released if needed to keep the global market well supplied.

At the time of writing both Aramco and Saudi sovereign bonds are approximately 10-20bp wider, with cash prices currently 0.25 to 2.5 points lower. However, the market reports there are no signs of panic selling with good 2-way flow and volumes are only slightly above the norm for this time of year. Brent is currently trading at just above $65.50 a barrel, up about 9%. Despite this setback, Saudi Arabia remains in a favourable position with $500bn of FX reserves, low public debt, and strong banking positions; allowing adequate financing options. The Kingdom also has sufficient oil reserves, ~200m/b to support export demand. We look forward to the statement from Aramco tomorrow.

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