DUBAI: Oil prices saw a record surge Monday after attacks on two Saudi facilities slashed output in the world’s top producer by half, fuelling fresh geopolitical fears as Donald Trump blamed Iran and raised the possibility of a military strike on the country.
Brent futures surged $12 in the first few minutes of business – the most in dollar terms since they were launched in 1988 and representing a jump of nearly 20 percent – while WTI jumped more than $8, or 15 percent.
Both contracts pared the gains but were both still more than 10 percent up.
The attack by Houthi rebels in neighboring Yemen hit two sites owned by state-run giant Aramco and effectively shut down six percent of the global oil supply.
Trump said Sunday the US was “locked and loaded” to respond to the attack, while Secretary of State Mike Pompeo said: “The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression.”
Oil prices surged Monday after an attack on Saudi Arabia’s largest oil processing plant halted output of more than 5.7 million barrels of crude a day.
But after an initial spike, crude oil prices moderated as traders analyzed the likely longer-term implications.
By late morning in Asia on Monday, U.S. crude oil was up $4.89 per barrel, or 8.9%, to $59.73 per barrel early Monday in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, surged $6.02 per barrel, or 10%, to $66.25 per barrel.
Earlier, U.S. crude jumped more than 15% and Brent leaped nearly 20%.
Yemen’s Iran-backed Houthi rebels claimed responsibility for the attack on the Saudi Aramco facility that paralyzed production of more than half of Saudi Arabia’s global daily exports and more than 5% of the world’s daily crude oil production.
Most of the output goes to Asia, where markets were mixed Monday in early trading. Japan’s markets were closed for a holiday, while Hong Kong’s Hang Seng dropped 1%. The benchmark in Indonesia, which heavily depends on oil imports, dropped 1.6%.
“To take Saudi oil production down 50%, that’s shocking,” said Jonathan Aronson, a research analyst at Cornerstone Macro.
The attack may add to anxiety about the stability of the world’s oil reserves. “Saudi Arabia has been a very reliable supplier of oil in the world,” said Jim Burkhard, who heads crude oil research for IHS Markit.
This attack is “adding a geopolitical premium back into the price of oil.” That means oil prices would rise because of worries about more unrest hurting supply. Higher oil prices tend to hurt the economy as consumer costs rise.