Environment and Energy

CRU Economist: Saudi Oilfield Attack Likely Just a Short-term Disruption

Written by Tim Triplett

Oil prices spiked by nearly 20 percent Monday on the news that a drone attack on Saudi Arabia’s oil facilities had knocked out more than 5 percent of the global oil supply. Prices corrected back down by about 6 percent today following reports that Saudi production would recover more quickly than originally anticipated.

The Wall Street Journal quoted Saudi Arabian officials this afternoon claiming that the kingdom had already restored 50 percent of its lost production and that they expected oil output to fully recover within weeks, seeking to calm global markets.

CRU Principal Economist Lisa Morrison estimates the attack is likely to cause a short-term disruption to just a portion of Saudi production totaling approximately 2.5M bbl/day. “Oil inventories are running a little higher than normal, so those may come under pressure. But a normal level of inventory represents about 85 days’ demand, so there shouldn’t be panicking for a couple of weeks,” Morrison said.

To what degree higher oil prices impact gasoline prices in the United States depends on how fast the Saudis can get production back online. “The supply side is restraining itself right now, indicating that other producers aren’t worried about how to fill that gap. We are going to get some very useful information as to who can come online, and how fast, if the Saudis cannot deliver,” Morrison said.

How much the oil supply disruption will translate into higher prices at the pump remains to be seen. “As for consumers, fuel prices have been pretty low and that’s been good for the economy. If consumers have to start paying more for gas, they will forsake other things, and that will be a negative for U.S. growth,” she added.

Latest in Environment and Energy