An attack on a Saudi Arabian oil facility over the weekend, which is responsible for cutting off at least five percent of the world’s oil supply, is set to have major implications on the world economy and potentially gas prices.
The attack on Saudi oil facilities is an attack on the world economy https://t.co/TKxBvvKLCn
— Bloomberg Opinion (@bopinion) September 15, 2019
As a result of the attack, the Saudis have reduced their oil production by nearly five million barrels per day, which is almost half of its normal output.
Saudis cut oil and gas production after drone attacks, with possible consequences for world prices https://t.co/moIXwXsVjD
— BBC Breaking News (@BBCBreaking) September 14, 2019
One of the consequences of the reduction in Saudi output is a dramatic increase in the price of a barrel of oil, which is expected to at least double in the short-term.
Oil analysts expect prices to jump at least $5 to $10 a barrel Monday after a strike on a key facility cut Saudi Arabia’s production by half https://t.co/G4V0HVxY9t
— Bloomberg (@business) September 15, 2019
This leaves President Trump with a decision as to whether to tap into the United States’ emergency oil reserves in order to cut off a sharp domestic rise in gas prices.
The Trump administration can deploy the nation’s emergency oil reserves and help stabilize markets if needed after a series of drone attacks in Saudi Arabia knocked out half of the kingdom’s crude output https://t.co/lah9WvU8Lt
— Bloomberg Asia (@BloombergAsia) September 15, 2019
The Saudis have oil reserves stashed throughout the world that can help mitigate the immediate losses, but if the outage drags on, the economic impact could be much greater.
“While most analysts agree that prices will spike initially, the duration of the outage is key. Saudi Arabia has millions of barrels stored in locations around the world, which they can draw down to replace the lost production. A rally could also be tempered if the U.S. and other countries release oil from their strategic reserves to ease the shortfall.”
One thing for sure is that Monday will be a very active day for the world economy and especially the oil market.