WASHINGTON – Pessimistic analysts keep looking for a “black swan” event to clobber September’s ongoing but furtive stock market rally. But the naysayers may have gotten their wish Saturday. That’s when reports hit news wires that major Saudi oil facilities were attacked either by missiles or bomb-carrying drones. (One estimate claims that 10 drones were involved.) Yemen’s Houthi rebels, funded for years by Iran, claimed credit for the bombing attacks. Yet another report claims the missiles or drones were launched from Iraq.
But, as always in the Middle East, the truth may be harder to parse. Perhaps by sometime Monday, we’ll get a clearer picture of what actually happened.
Latest on the bombing attacks in Saudi Arabia
The Wall Street Journal provides the latest news and details on the bombing attacks, as of 2 p.m. ET on Sunday, September 15, 2019. (We subscribe, but the link may remain behind the WSJ’s pay wall.)
“Saudi Arabia’s national oil company expects to restore roughly a third of crude output disrupted due to a weekend attack by day’s end on Monday, Saudi officials said, a step back from earlier hopes that it could quickly resume full production by the start of the week.
“The strikes on Saudi facilities Saturday knocked out 5.7 million barrels of daily production, and the officials said they still believe they can fully replace it in coming days. That would require tapping oil inventories and using other facilities to process crude. One of the main targets of the attack was a large crude-processing plant in Abqaiq.
“‘We should be able to have 2 million barrels a day back online…by tomorrow,’ said one person familiar with the matter.
More from the Saudis
“The Saudi national oil company, known as Aramco, has determined that its facilities were hit by missiles, people familiar with the matter said. A U.S. government assessment determined that up to 15 structures at Abqaiq suffered damage.
“Aramco’s CEO, Amin Nasser, said early Sunday that work is underway to restore production. The company will issue a progress update sometime Tuesday. It will take weeks to return to full production capacity at the damaged facilities, according to people familiar with damage estimates in Saudi Arabia.
“The assessments came as [Saudi Arabian national oil conglomerate] Aramco executives and Saudi officials evaluated the damage a day after the strikes on Abqaiq and Khurais, one of Saudi Arabia’s largest oil fields, forced the country to suspend more than half of its output, which represents over 5% of global supply.”
Such assessments, however, are open to question at this point. As one might expect, notes the WSJ,
“Yemeni Houthi rebels claimed responsibility for the attack, though the U.S. has said it believes Iran is responsible, which Tehran has denied.”
Market reaction to the bombing attack? It remains up in the air Sunday
Regarding the impact on world stock markets resulting from the bombing attacks, it remains a big question mark at this point. The Saudis claim they can get a certain amount of production back on line, perhaps by Tuesday. The Saudis theoretically could temporarily reclaim the bulk of remaining production if they draw on their own huge oil reserves. That could tide them over until they restored the rest of their damaged facilities. Which, given the apparent damage, would likely not happen overnight.
“‘[The damage] is definitely worse than what we expected in the early hours after the attack, but we are making sure that the market won’t experience any shortages until we’re fully back online,’ said a Saudi official.”
ZeroHedge remains pessimistic
Elsewhere, the inevitably negative-minded Tylers over at ZeroHedge waxed a bit more pessimistic. But they also provide additional color. (Bolding in ZH excerpts is via ZH.)
“With the Saudis now racing to restore full oil production to normal levels as one Sunday morning headline noted, the industry is bracing for a potential significant delay in production — given rumors the fires at the facilities struck in the early hours of Saturday may not be fully “under control” as the kingdom was quick to assure hours after the raging explosions — which could translate into oil prices being very high for a long time. Industry sources said it could take weeks to return full production levels to normal.
“Following what Yemen’s Houthis claimed was their own successful targeting of Saudi Arabia’s second largest oil field in the Khurais, as well as the sprawling Abqaiq oil processing facility in Buqyaq — described by Aramco as “the largest crude oil stabilization plant in the world” — the Saudi company acknowledged it was forced to slash its output by half, equal to about 5% of world supply, specifically 5.7 million barrels a day of oil production lost. In the meantime, Saudi Arabia’s stock market fell by 2.3% at Sunday’s open.
“What will Monday bring? Upon market opening there’s widespread prediction oil will rally by $5 to $10 per barrel, and as we were among the first to note, could eventually hit $100 per barrel — the latter alarming scenario dependent on how slow or fast the facilities can be brought back online.”
What crude price is right?
That $100 figure is extremely dubious at this point. Following the ZH link and moving to the end of this piece, you’ll find latest estimates (via Reuters) of the potential outages, estimated repair times by a considerable number of stock and market analysts. They range from a temporary $7.00 – $20.00 bbl. price jump in both Brent (UK) and West Texas Intermediate (WTI) crude oil prices, which could cause considerable disruption during Monday morning’s opening trading action on Wall Street.
Bottom line: So much for last week’s despair over the world oil glut.
Good news and bad news
We’d observe at this point that any number of yins and yangs will come into play Monday. First of all, CNN & Co. will no doubt highlight the irony that just days after sacking perma-cold warrior John Bolton, the Trump Administration may find it needs to confront Iran all over again. And just when things were looking great for re-opening negotiations with Iran’s always-unreliable mad mullahs. Time will tell on that one.
In addition, while the current position of Secretary of State Mike Pompeo (and the Saudis) is to attribute the bombing attack directly to Iran, the custom of relentlessly lying to us Western infidels makes a great deal of the “information” we now have fairly unreliable until the US can further verify it. Complicating matters still further are rumors that the Saudis may even have launched a “false flag” operation against their own facilities, the better to gin up enthusiasm for renewing a push against the Houthis and/or Iran itself.
On the other hand, confusing matters further, why would the Saudis do this, particularly close to the eve of their long-delayed and much ballyhooed giant IPO of Aramco? That’s the massive international oil giant the Saudis put together many years ago after confiscating all the Saudi-based oil facilities owned and operated by Western countries. Particularly those from the US. Swell allies, eh? But events tend to go this way things go in the Middle East. Agreements are forever, until they aren’t.
Salvation for failing US frackers and wildcatters?
Final irony: More and more US frackers and wildcatters heading for bankruptcy after grossly overestimating the demand for oil may get at least a temporary bailout from Mr Market this week. Ditto major producers whose stock prices have wallowed in their own LaBrea Tar Pit for the better part of 2019. Might be time to buy some of these oil patch shares. At least for a quick trade.
We have no further information at this point. But expect fusillades of rumors to keep hitting the wires, the internet and so-called cable TV news today.
Should something big arise, we’ll try to get updates posted here at CDN. Expect something around 10 or 10:30 a.m. ET Monday morning. Or once the oily smoke clears enough for us to assess the damage (if any) to US stocks.
Voice of America (VOA) video obtained in the aftermath of the Saturday bombing attacks on major Saudi Arabian oil facilities. (US government footage, in the public domain, via YouTube)
— Headline image: Immediate aftermath of 091419 attack on major Saudi Arabian oil facilities.
Video still from VOA feed via YouTube. US government footage, in the public domain.