Crude Oil futures leapt this morning by over 15% in a knee-jerk reaction to the attack on the Saudi Arabia Abqaiq oil facility over the weekend that notionally, took 5% of the world’s supply offline.
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Brent futures spiked by 20% and WTI futures by 15% despite U.S. President Trump authorising releases from the Strategic Petroleum Reserve just before markets opened.
Saudi Aramco has reduced the fallout somewhat by announcing today that over half of the 5 million barrels of production lost, will be restored by tomorrow. The balance, however, will be offline for an indeterminate amount of time. The effect on Brent and WTI has been marginal though, both still over 10% higher than Friday’s closes.
The attack was claimed by the Yemeni Houthi rebels, who claimed to have used ten explosive drones. The accuracy and sophistication of the attack on a facility over 500km from Yemen, has led to speculation that Iran and not the Houthis were responsible. The United States is openly accusing Iran of being the perpetrator. Time and evidence will tell off course, but the security of Saudi Arabia’s oil infrastructure will come under the microscope. Tensions in the Middle East are rising quickly, meaning this story will continue to reverberate this week even after the knee-jerk panic in oil markets this morning.
Hong Kong’s violent protests escalated over the weekend, with protestors attacking more MTR stations and refusing to take the olive branch of Carrie Lam regarding the hated extradition law. Hong Kong Airport’s arrivals numbers also collapsed, implying that the 100-day protests are starting to have a real economic effect. Oil ructions aside, investors would have already been nervous today in Asia as a belligerent China returns from holiday.
Swept from the headlines has been the frenzy of Central Bank rate announcements this week, with the U.S., Japan, U.K., Switzerland and Brazil all due to announce. Except for the U.K., I can see all of the other cutting rates or further easing to some degree.
Geopolitical tensions are likely to remain the centre of attention as the week begins with haven and resource currencies likely to outperform along with precious metals. The U.S. bond sell-off from last week continued in a knee-jerk fashion this morning. Is also unlikely to last as investors seek shelter from what is going to be a very rough week.
