Continued attacks on Saudi Arabian crude oil production adds new risk to crude supply, writes Phil Flynn.
Geo-political risks to oil are at a new level. Even as the oil market eased off the reports that four Saudi oil vessels were attacked because of U.S.-China trade turmoil, another attack on oil will impact supply and could cause a major oil supply disruption.
Reports overnight of a drone attack on a major Saudi Arabian oil pipeline suggests that there are ongoing attacks on Saudi oil infrastructure. Dow Jones reports that “the armed drones attacked two pump stations on a pipeline that transports oil from the Eastern Province to Yanbu port on the Red Sea,” according to Saudi Energy Minister Khalid al-Falih in a statement. They are now reporting that oil has been halted on this major pipeline.
The problem here is the risk of escalation. President Donald Trump has already warned Iran to not do this so there will be a response. In the meantime, we may get to see how quickly shale oil producers can respond to this type of threat. The talk of the U.S. as the new world’s swing producer will be put to the test. The truth is that it will be virtually impossible for U.S. producers to be able to ramp up enough to replace lost Saudi supply.
Still with the trade war heating up we may see more crazy moves. Yet risks are high, so make sure you are hedged!
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