Oil spikes sharply higher on major supply disruption; Mild risk-off moves seen in other markets

Summary:

  • Oil experiences largest jump in % terms since 1990

  • Attack on Saudi wipes out around 50% of the Kingdom's production 

  • Large moves impact other markets

  • Shares in Energy firms soar; Airlines dip

 

It’s been a dramatic start to the new week for crude markets with international benchmark Brent (Oil on xStation) experiencing the largest spike in percentage terms since Saddam Hussein invaded Kuwait in 1990. Futures contracts were up by almost 20% as trading resumed last night due to an attack on Saudi Arabia’s oil infrastructure over the weekend, which represents a significant supply side shock. 

 

Not only has the damage removed more than 5m b/d of Saudi output - the single biggest outage from one incident on record and around 1/20th of global production - but there’s obvious fears this won’t be an isolated incident. The attack has caused the largest ever disruption in terms of barrels per day (b/d) lost, outstripping the Iranian revolution in 1978-79 and also the Iraqi invasion of Kuwait in 1990-1991.

 

The shock has caused moves across other asset classes too with the Canadian dollar and Norwegian krone two of the main beneficiaries while large importers of Oil such as Turkey have seen understandable adverse reactions in their currency. Risk sentiment in general has taken a hit with indices gapping lower while bonds and precious metals have experienced some buying with Gold moving back above the $1500/OZ mark once more.  

 

US indices began on the back foot, gapping lower on the open as a risk-off mood took control of the markets with S&P500 futures beginning around 25 points, or almost 1%, lower than where it ended on Friday. Since then however the market has stabilised somewhat and the index is now back near the 3000 mark and looking to close the gap back to 3007.

 

Given the huge move higher in crude oil prices, it is not too surprising that Oil firms began brightly on the opening bell with Exxon Mobil and Chevron both starting around 3% higher. There remains lots of uncertainty and heightened risk as far as the price of Oil is concerned in the near-term with the main focus initially being how long it will take to repair the outages and get the 5.7M bpd lost back online.

Attack on Saudi oil facilities that happened over the weekend caused oil prices to spike and made oil producers the best performing stocks at the beginning of a new week. On the other hand, airlines are among the companies that were hit the most as higher crude prices translate into higher fuel prices. Deutsche Lufthansa (LHA.DE) is no exception as the German carrier is the worst performing DAX stock on Monday morning.

 

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