KUALA LUMPUR: Last weekend’s drone attacks on Saudi Arabia’s critical crude processing plants have raised a poser on whether oil price is heading back towards US$100 a barrel.
Until a few days ago, oil prices hitting that level was almost an impossible scenario.
Not anymore, said FXTM chief market strategist Hussein Sayed.
Hussein noted that oil prices had soared 20 per cent as markets reopened to trade near US$72 a barrel yesterday before giving up half its gains five hours later.
“The price shock seen today is the largest in almost three decades since Saddam Hussein invaded Kuwait back in the 1990s,” he wrote in a report.
If statements blaming Iran for the drone attacks and urging for an attack on Iran’s oil refineries continued to flow from the US administration, geopolitical risk premium would increase significantly as any strike against the country may put the whole Gulf region in jeopardy, Hussein said.
“If investors begin pricing in the possibility of an attack against Iran’s crude infrastructure, oil may quickly hit the US$100 benchmark.
“Nevertheless, if President Donald Trump reverses course and allows Iran to export its oil, tensions will de-escalate, although currently this doesn’t seem to be the base case scenario. The next couple of days and weeks will be of incredible importance to the global economy and markets,” he added.
Affin Hwang Capital, meanwhile, is bullish about global oil prices in the near term.
The firm named Hibiscus Petroleum Bhd and Petronas Chemicals Group Bhd as the best proxies to any sustained oil price hike.
“We are upbeat on global oil prices in the short run as the disruption may take longer-than-expected given Saudi’s less optimistic view of a full production resumption over the near-term.”
The firm, nevertheless, maintained a “neutral” rating on the local oil and gas sector as the disruption was still viewed to be temporary.
The drone attacks on Saudi’s Abqaiq oil processing facility and Khurais oil field have reportedly impacted production by 5.7 million barrels per day, lowering current production from 9.8 million barrels a day to 4.1 million barrels a day.
Affin Hwang said this accounted for a significant 58 per cent of Saudi’s production and 19 per cent of OPEC’s total production as of August this year, which made up five per cent of world supply.
“While Saudi Arabia had initially guided for full production resumption by yesterday, reality started to sink in and Saudi turned less optimistic over a full recovery and currently only expects to restore one-third of the lost production,” the firm added.
Public Investment Bank Bhd said among the local oil and gas players, Hibiscus was the biggest beneficiary given its direct proxy to the oil prices as an oil producer in the upstream segment.
PublicInvest retained its “overweight” stance on the sector with crude oil prices likely to hover around US$65-US$70 a barrel in the near term.