SAUDI: The big oil attack we’ve all been waiting for

GULF COUNTRIES - In Brief 14 Sep 2019 by Rory Fyfe

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Reports suggest Houthi rebels successfully attacked a crude oil processing facility, handling 5m b/d of Saudi oil output. This is the largest outage in the history of the global oil sector. US Secretary of State Mike Pompeo has alleged Iran was directly behind the attack.Early indications are that oil output will be offline for a short period (48 hours) and that Saudi has enough oil stocks to continue supplying global markets. However, their remains considerable uncertainty at the present time and images of the fires make this seem optimistic. If the shock is truly temporary, it would still have important implications for the global oil market and the GCC as a whole. Markets are likely to price in some form of reprisal as well as the prospect of a direct confrontation between Saudi and Iran. If the shock is more permanent (lasting a few months or longer), we expect oil prices to rise dramatically, between $10-30/b based on past historical estimates of geopolitical oil price shocks.In either case, this shock will not be positive for Saudi Arabia. Even if oil prices spiked to $100 b/d, oil revenues would still be less compared to full production and prices at $60 b/d. Furthermore, diversion of oil trade away from Saudi and the region is likely.We expect sentiment around regional asset prices to also be negatively affected due to concerns around further conflict escalation. At this stage, it is hard to know more, we will continue to provide updates as new information arises and we will provide a full report once the market has reacted on Monday. Overnight on Friday, the Houthi rebels in Yemen executed drone strikes on two significant targets in eastern Saudi Arabia, the K...