The drone and cruise missile attacks on Saudi oil facilities on September 14 drove oil prices sharply higher, but the rapid restoration of Saudi exports helped limit the gains.
The higher international prices are yet to filter through to the UK forecourt, but prices look destined to rise, particularly for diesel, as the crude oil gains filter through to the downstream market.
Brent crude futures closed September at $61.91, up just $1.50/bl on August, after briefly topping $72/bl the day after the attacks the largest intraday spike in the history of the futures contract.
Saudi Arabia pulled out all the stops to honour sales contracts for customers. "Not a single shipment to an international customer has been or will be missed or cancelled as a result of these attacks," Aramco chief executive Amin Nasser said after the attacks. The kingdom was as good as its word. The shortfalls were made up from stocks, substitution for different grades, oil bought from Kuwait and the diversion of crude originally scheduled for the Saudi refining sector.
This final tactic threatened to push up the prices of transport fuels in Europe. Saudi Arabia has evolved into one of the world’s largest diesel suppliers in the past three years, after upgrading its reefing sector. Net exports of diesel and jet fuel were more than 800,000 b/d in January-July and Saudi Arabia also bought gasoline after the attacks to make up for lost local production.
The impressive Saudi response to the attacks on their oil infrastructure and the relatively limited impact on price should not mask the gravity of future threats to oil supply and the likelihood of an increasing risk premium built into the oil price.
The Saudi defences were breached with alarming ease despite an extravagantly funded military.
More worrying still was the threat of military action against Iran after bellicose rhetoric from Riyadh and Washington after the attacks pinning the blame squarely on the Islamic Republic. There is no telling where the price could go in the event of more war in the Mideast Gulf.