Oil plummets 5% as Saudi output seen returning soon after attacks

NEW YORK (Reuters) – Oil prices dropped nearly 5% on Tuesday after a top Saudi Arabian source told Reuters that production could be fully back on line within weeks, quicker than initially thought following weekend attacks that halved the kingdom’s output.

Oil pump jacks work at sunset near Midland, Texas, U.S., August 21, 2019. REUTERS/Jessica Lutz

Saturday’s attacks raised the specter of a major supply shock in a market that in recent months has been preoccupied with demand concerns and faltering global growth. Oil surged as much as 20% at one point on Monday.

Production could be fully online within two to three weeks and the kingdom was close to restoring 70% of the 5.7 million barrels per day lost after the attacks, a top Saudi source briefed on the latest developments told Reuters.

Brent crude LCOc1 futures plummeted fell $3.30, or 4.8%, to $65.72 a barrel by 12:03 p.m. EDT (1603 GMT). U.S. West Texas Intermediate (WTI) crude CLc1 fell $2.91, or 4.6%, to $59.99 a barrel, a 4.6 percent loss.

Both benchmarks earlier sank more than 6%.

In the immediate fallout from the attacks, state-owned producer Saudi Aramco told some Asian refiners it would meet its oil commitments, albeit with changes, sources said.

Saudi Energy Minister Prince Abdulaziz bin Salman will hold a news conference at 1715 GMT, giving what would be the first official update since Aramco announced on Sunday that attacks on its plants had knocked out about half of the kingdom’s production.

“We need a proper damage assessment, we need to see a recovery plan. Before that, we don’t really know how much oil will be offline for how long and that’s the basic question people having been posing since Saturday,” said Samuel Ciszuk, founding partner at Stockholm-based ELS Analysis.

The attacks on crude-processing facilities at Abqaiq and Khurais resulted in the largest single supply disruption in half a century, and threw into question Saudi Arabia’s status as supplier of last resort.

Some Asian refineries are expected to receive their allocated volumes for October, while other importers are being told of delays or being offered alternative grades.

(GRAPHIC: Global oil prices pull back but remain jittery, here)

The prospect of releases from strategic oil reserves in the United States, and other industrialized countries that the International Energy Agency advises, such as Japan, have weighed on prices, but the geopolitical threat of retaliation is causing concerns.

U.S. Vice President Mike Pence said the United States was reviewing evidence that suggests Iran was behind the attacks on Saudi oil facilities and stands ready to defend its interests and allies in the Middle East.

“We’re evaluating all the evidence. We’re consulting with our allies. And the president will determine the best course of action in the days ahead,” Pence said.

Relations between the United States and Iran have deteriorated since U.S. President Donald Trump pulled out of the Iran nuclear accord last year and reimposed sanctions on its oil exports.

If Iran conducted Saturday’s attacks to pressure Trump to lighten sanctions aimed at pressuring Tehran over its nuclear program, that strategy will fail, Pence said.

Tehran rejects the charges it was behind the strikes and on Tuesday ruled out talks with Trump. Saudi King Salman meanwhile called on governments around the world to confront the threats to oil supplies.

“We feel that a need to maintain a substantial amount of geo-risk premium will continue even if Saudi production is revived quicker than generally expected and some SPR barrels are released into the market,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

Meanwhile, the markets also looked ahead to weekly data on U.S. oil inventories, with crude stocks forecast to have dropped for a fifth straight week.

Industry data on oil inventories for last week will be at 4:30 p.m. EDT (2030 GMT), followed by the government’s report at 10:30 a.m. EDT on Wednesday.

(GRAPHIC: Saudi Arabia crude oil exports by top destination, here)

Additional reporting by Sabina Zawadzki in London and Aaron Sheldrick in Tokyo; Editing by Marguerita Choy and Louise Heavens

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