Oil fell more than one per cent yesterday as the market was challenged creating uneasiness following attacks on Saudi Arabian crude facilities that cut the kingdom’s production in half and sent prices soaring by the most in decades.
The attack heightened uncertainty in a market that had become relatively subdued in recent months due to slowing growth as the U.S.-China trade war rages and now faces the loss of crude from Saudi Arabia, usually the supplier of last resort.
A gauge of oil-market volatility on Monday rose to the highest level since December of last year, and trading activity showed investors expect higher prices in coming months.
Brent crude was down 77 cents, or 1.1 per cent, at $68.25 a barrel while West Texas Intermediate was down 82 cents, or 1.3 per cent, at $62.08 a barrel.
Crude prices surged by nearly 20 per cent on Monday as they responded to Saturday’s attack, the biggest jump in almost 30 years, before closing around 15 per cent higher.
“With the US ‘locked and loaded’ awaiting signs from Saudi Arabia that Iran was involved, tensions in the Middle East could get worse before they get better. Under these circumstances, the price of oil could remain elevated for some time yet.
“However, let’s also not forget that the demand picture isn’t great right now which will dampen the oil price quickly. Most recently China’s industrial production figures disappointed overnight,” Cityindex analyst Fiona Cincotta said.
Saudi Arabia is the world’s biggest oil exporter and, with its comparatively large spare capacity, has been a supplier of last resort for decades. The attack on state-owned producer Saudi Aramco’s crude-processing facilities at Abqaiq and Khurais cut output by 5.7 million barrels a day and threw into question its ability to maintain oil exports.