Oil futures dropped sharply on Tuesday, after registering one of the sharpest rallies on record a day earlier, following a report that output from Saudi Arabia will be quick to recover from weekend attacks on major crude facilities which disabled more than half of the kingdom’s daily crude production level.
The Saudis are close to restoring 70% of the 5.7 million barrels per day production lost after the attacks, Reuters reported, citing a top Saudi source briefed on the latest developments. The source also said output will be fully back online in the next two to three weeks.
“The good news is production will be back on line. What he did not say is how they are going to stop these drone and missile attacks in the future,” said Phil Flynn, senior market analyst at Price Futures Group.
The kingdom’s energy minister Price Abdulaziz bin Salman will hold a news conference at around 8 p.m. local time (1 p.m. Eastern time) to provide an update on the situation with the oil facilities, Reuters report, citing the media ministry.
West Texas Intermediate crude for October delivery CLV19, -5.31% the U.S. benchmark contract, was down $3.22, or 5.4%, at $59.69 a barrel on the New York Mercantile Exchange, after the largest daily gain for the most-active contract since Sept. 22, 2008, according to Dow Jones Market Data. WTI finished Monday’s session at its loftiest level since May 21, 2019.
November Brent crude BRNX19, -5.23% lost $3.22, or 4.7%, to $65.0 a barrel on ICE (NYSE:ICE) Futures Europe, following the international benchmark contract’s sharpest percentage gain on record and its biggest dollar rise since June 6, 2008.
Monday’s price spikes in both Brent and WTI crude oil came after a Saturday attack on Saudi Arabia’s Abqaiq plant and its Khurais oil field, which has thrown offline an estimated 5.7 million barrels of the kingdom’s crude oil production a day. Saudi Arabia has enough oil in storage to make up the lost production for about 30 days, but it may take weeks or months to repair the damage to the processing plant and oil fields.
U.S. intelligence on Monday said evidence points to Iran as the source of the Saudi attacks, which officials from Tehran have denied. However, a somewhat softening stance from the U.S. and Saudi, in terms of military responses, may cool a run-up in crude prices, even if it takes longer for Saudi production to return online.
“I don’t want war with anybody,” said President Donald Trump on Monday, in response to questions from reporters during a press conference in the White House with the Crown Prince of Bahrain.
Those comments were in contrast to statements on Monday from U.S. Secretary of Energy Rick Perry and U.S. Secretary of State Mike Pompeo, who both definitively pointed the finger at Iran for the attack on Saudi’s energy infrastructure. Moreover, the Wall Street Journal on Monday reported that U.S. intelligence indicated that the Saudi attack originated in Iran, with a combination of a drones and missiles. Saudi officials, however, have indicated that there isn’t enough evidence to implicate Tehran definitively.
“The shock loss of 5% of global crude production has markets focused on how soon Saudi Aramco can bring back production and if we will see the US or other countries use their respective strategic reserves,” wrote Edward Moya, senior market analyst at brokerage Oanda.
“The latest update shows Saudi Aramco’s initial calculation on the damages may have been too optimistic and some customers expecting early October deliveries will likely see shipments later in the month,” he wrote.
Back on Nymex, October gasoline RBV19, -3.83% fell 4.9% to $1.6671 a gallon and October heating oil HOV19, -3.61% shed 4.5% to $1.9903 a gallon.
October natural gas NGV19, -0.07% traded at $2.661 per million British thermal units, down 0.8%.