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Brent crude oil prices surge as Saudi Arabia struggles to restore production after Houthi drone attack

Telegraph Reporters
Smoke rises from the Abqiaq refinery following a drone attack, September 14 - Al-Arabiya

Brent crude surged the most on record after a drone strike on a Saudi Arabian oil facility removed about 5pc of global supplies.

The benchmark oil futures jumped as much as $11.73 a barrel (£9.40) to $71.95 as the market opened Monday in Asia, the biggest advance in dollar-terms since futures started trading in 1988.

State energy producer Saudi Aramco lost about 5.7m barrels per day of output on Saturday after 10 unmanned aerial vehicles struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais.

For oil markets, it was the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbor. It also exceeded the loss of Iranian oil output in 1979 during the Islamic Revolution, according to data from the US Department of Energy.

“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure – that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Citigroup Inc.’s Ed Morse wrote in a research note.

Saudi Arabia can restart a significant volume of the halted oil production within days, but needs weeks to restore full output capacity, people familiar with the matter said. The kingdom – or its customers – may use stockpiles to keep oil supplies flowing in the short term.

Aramco could consider declaring itself unable to fulfill contracts on some international shipments – known as force majeure – if the resumption of full capacity at Abqaiq takes weeks.

That would rattle oil markets and cast a shadow on Aramco’s preparations for what could be the world’s biggest initial public offering. It’s also set to escalate a showdown pitting Saudi Arabia and the US against Iran, which backs proxy groups from Yemen to Syria and Lebanon.

Iran-backed Houthi rebels in Yemen claimed credit for the attack, but USSecretary of State Mike Pompeo blamed Iran directly.

The Trump administration said it was ready to deploy the nation’s emergency oil reserves and help stabilise markets if needed.

“The vulnerability of Saudi infrastructure to attacks, historically seen as a stable source of crude to the market, is a new paradigm the market will need to deal with,” said Virendra Chauhan, a Singapore-based analyst at industry consultant Energy Aspects Ltd. “At present, it is not known how long crude will be offline for.”

Brent jumped as much as 19.5pc, it’s biggest gain in percentage terms since 1991. It was up 12.7pc at $67.85 a barrel on ICE Futures Europe at 6:33 a.m. in Singapore. West Texas Intermediate crude futures jumped as much as 15.5pc in New York to $63.34, the most since 2008.

Oil sank 2.1pc in London to $60.22 a barrel last week and 3pc in New York to $54.85, amid concerns that slowing demand growth may augur another supply glut.