PETALING JAYA: Oil prices are almost back to pre-shock levels yesterday following Monday’s 10% surge due to a weekend drone attack on one of Saudi Arabia’s most important oil facilities that many assumed would cripple petroleum exports for days or weeks.
As of press time yesterday, Brent crude oil was hovering at the US$63.72 level, meaning that Brent oil prices are only 5.8% higher compared with before the weekend attacks.
While Brent futures briefly spiked about 20% or more than US$11 a barrel when trading started on Monday, it then eased to an increase of about 10%, or just over US$6 a barrel. By Tuesday, the uptrend was halted on news that production would be restored soon.
The reality is this – one cannot fight the structural long-term trend of oil, according to some market observers.
There are a tonne of oil inventories across the globe and oil disruptions are increasingly having smaller effects on oil prices.
The availability of huge oil inventories was confirmed on Tuesday afternoon when Saudi Energy Minister Prince Abdulaziz Salman said the country would restore its lost oil production by the end of the month.
He added that Saudi Arabia had managed to recover supplies to customers to the levels they were at prior to the weekend attacks on its facilities by drawing from its huge oil inventories.
On Bursa Malaysia, oil stocks initially gained on Tuesday, with many research houses turning positive on oil prices and oil stocks.
By yesterday, all those gains were returned.
Petronas Dagangan Bhd and Petronas Chemicals Bhd saw most of their previous day’s gains evaporate early yesterday after Saudi Arabia reported it was restoring production after the weekend drone attacks.
Following the attack, some analysts were looking at these attacks disrupting 6% of world oil output and 50% of Saudi Arabia’s output, which is equivalent to five years of global oil demand growth.
“This incident far outweighs the previous supply shock in the 70s and could escalate tension in the already fragile Middle East, ” said an analyst report.
However looking at historical data, it is becoming increasingly clear that oil shocks and war no longer have the same impact on oil prices as they would have had a decade or two ago.
During the famous Arab oil embargo back in October 1973 which dragged for four weeks, oil prices skyrocketed by 231.6%.
Since then, the subsequent 20 oil disruptions had seen lesser effects on oil prices.
One factor for this indifference is that this drone attack happened as global oil stockpiles are at higher levels than usual.
The bigger reason is that the emergence of shale oil led by the United States about a decade ago has changed the dynamics and political play of the oil industry.
US oil production has doubled in the past nine years due to oil produced by hydraulic fracturing and horizontal drilling in shale basins.
In the International Energy Agency’s latest oil market report on Sept 12, it said that competition for market share was getting tougher, with preliminary data showing that in June the United States momentarily overtook Saudi Arabia and Russia as the world’s number one gross oil exporter.
The US oil output from seven major shale formations is expected to rise by 74,000 barrels per day (bpd) in October to a record high of 8.84 million bpd, the US Energy Information Administration said in its monthly drilling productivity report earlier this week.
US oil production is on track to spike to a record 13.4 million barrels per day by the end of 2019, according to a recent report by energy research firm Rystad Energy.
This more than double what it produced in 2012 and almost two million barrels more than a year ago.
Today the United States imports about 630,000 barrels of Saudi oil a day, down about half from 2017.