Latest report says attacks in strategically important Gulf region cannot be shrugged off
The International Energy Agency (IEA) warned Friday against market complacency as suspected missile strikes hit an Iranian oil tanker near the Saudi port of Jeddah, once again ratcheting up tensions.
In its first monthly report following the attack last month on Saudi installations that caused the largest-ever loss in oil production from a single incident, the IEA noted that a quick recovery of output and fears about an economic slowdown had already seen prices return to pre-attack levels.
“The renewed focus on demand and supply fundamentals does not mean that the attacks on Saudi Arabia can be shrugged off as being of little consequence,” it warned in a report prepared before the explosion on the Iranian tanker.
“Further incidents of this nature in the strategically important Gulf region could happen and cause even greater disruption,” the Paris-based organisation said.
Oil prices shot more than two percent higher after news of the explosions on the tanker, which its owner National Iranian Tanker Company said were “probably caused by missile strikes”.
Other tankers have also been damaged in suspected attacks near the Gulf.
The September 14 attacks on Saudi state-owned Aramco facilities in Abqaiq and Khurais initially halved the kingdom’s crude output and sent global energy markets into a tailspin, with crude prices briefly spiking nearly 20 percent.
Abqaiq is the world’s largest oil processing facility and Khurais is Saudi’s second-largest oil field.
The attacks were claimed by Yemen’s Huthi rebels. Riyadh leads a military coalition against the Iran-backed Huthis, which have carried out dozens of cross-border drone and missile attacks on Saudi targets, including oil facilities.
Washington has concluded that the strikes were launched from Iranian soil and that cruise missiles were used. Tehran denies its involvement.
Geopolitical price premium?
Saudi swiftly recovered from the attack which knocked out 5.7 million barrels per day (mbd) in production, quickly returning to output of 10 mbd.
The IEA says the kingdom looks set to return to pre-attack rates in October, but that difficulty in obtaining equipment may mean it does not hit its target of raising production capacity back to 12 mbd by the end of November.
Saudi is a key player in the global oil market as it has the largest spare capacity that it can quickly bring online in case of supply disruptions in other parts of the world.
“Intuitively, the precision attacks on Saudi Arabia and the possibility of a repeat should keep the market on edge,” the IEA said.
“There should be talk of a geopolitical premium on top of oil prices,” it added.
The IEA said a key lesson from the recent weeks was that global oil stocks have provided an insurance policy from disruptions.
In addition to the strategic reserves that many industrial nations hold, commercial oil firms also keep stocks, which were close to the record of more than 3 billion barrels in August, the IEA noted.
The IEA trimmed its forecast for oil demand growth this year, mostly due to data revisions, but still expects 2019 to be the weakest year since 2016.
It cited slowdowns in Europe, India, Japan, Korea and the United States.
“Oil demand growth in China is, in contrast, holding up at robust levels,” said the agency.
The IEA also revised down its forecast for growth in oil demand for 2020 to 1.2 mbd, to reflect the recent downward revision for global economic growth next year by the Organisation for Economic Co-operation and Development (OECD).
“The main factors behind the downgrade are uncertainty due to trade disputes and the impact of Brexit,” said the IEA.
US and Chinese officials met on Thursday and Friday in Washington to try to resolve their trade dispute.
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