Oil price has dropped as there are fresh concerns over the threat of a military response to attacks on Saudi Arabian crude oil facilities.

Note that the attacks cut the country’s oil output by 50% and sent oil prices to a three-decade jump of 20%.

Following the attacks on Saudi’s oil facilities, the U.S President, Donald Trump threw frenzy in the windy, after his tweet indicated that Iran was the likely culprit behind the attacks. This has slightly built pressure on oil prices, as Brent crude dropped to $67.31 a barrel on Tuesday. Equities and other markets were also pressured.

According to New York Times, the U.S government has released satellite photographs showing what officials said were at least 17 points of impact at several Saudi energy facilities from strikes they said came from the north or northwest.

[READ MORE: Oil prices spike after Saudi Aramco facilities suffer drone attack]

While Yemen’s Houthi rebels are reportedly claiming responsibility for Saturday morning’s attacks, recent reports stated that Saudi Arabia had declared Iran as directly responsible for the drone attacks on an oil field and refinery at the weekend, with satellite photos revealing how precise the strikes were.

Oil Price Reactions: Following the attacks, Oil prices ended nearly 15% higher on Monday, with the Brent benchmark seeing its biggest jump in about 30 years. Basically, the rise came after two attacks on Saudi Arabian facilities on Saturday knocked out about 5% of global supply.

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  • Brent crude initially surged 20% at the start of Monday’s trading but eased back to end at $69 a barrel, up 14.6% while the US oil prices finished up 14.7%, the biggest jump since 2008.
  • Specifically, the attacks which led to global crude output 5% drop caused the biggest surge in oil prices since 1991.
  • Meanwhile, oil fell more on Tuesday morning as the market hung on tenterhooks over the threat of a military response.
  • Brent crude dropped 5.4% at $67.31 a barrel, and West Texas Intermediate was down 87 cents, or 1.4%, at $62.03 a barrel.

On the other hand, energy experts are split over the reactions of the oil prices to the recent attacks. Some have stated that while a production shortfall from an attack on one pipeline or refinery could often be offset by others, a return to full capacity might take months and this might drive prices up further.

[READ MORE: Oil Prices jump after Trump provides updates on trade-war]

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Dragan Vuckovic, president of Mediterranean International, an oil service company that works in Egypt and Iraq stated:

This changes the oil markets psychologically for a couple of years for sure now that everything is shown to be vulnerable. One drone can hit a refinery or an oil-field installation and that causes fires, destruction and stops all production. It means less oil on the market and higher oil prices.”

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Crude Oil

“If a full-fledged war between Iran and Saudi Arabia breaks out, there would be no limit to how high prices could go,” Jay Hatfield, portfolio manager at InfraCap MLP, an exchange-traded fund that invests in oil pipelines stated.

City Index analyst, Fiona Cincotta had a slightly contrary view. According to Fiona as quoted by Reuters, “With the U.S. ‘locked and loaded’ awaiting signs from Saudi Arabia that Iran was involved, tensions in the Middle East could get worse before they get better. Under these circumstances, the price of oil could remain elevated for some time yet.

“However, let’s not also forget that the demand picture isn’t great right now, which will dampen the oil price quickly. Most recently China’s industrial production figures disappointed overnight.”

[READ MORE: Trouble as crude oil price drops to a 7-month low, hits $57 a barrel]

Saudi’s Defiance: Despite Saturday’s attack, Saudi Arabia’s state oil giant, Aramco, has informed some of its major Asian customers that they would receive all the oil supply they had contracted — although lighter grades would likely be replaced with heavier crude, according to sources.

The U.S is also in the stand, as Donald Trump disclosed that he had authorized the release of oil from the Strategic U.S Petroleum Reserve, if needed, in a to-be-determined amount to keep the market well supplied.

The bottom line: While there are early indications that oil prices may hit $100 per barrel high, the surge in oil prices following attacks on Saudi’s facilities may just be short-lived. It should be noted that while the US stands as one of the few countries that would be able to increase exports in the short term, Saudi Arabia still has vast quantities of crude in storage, which has been estimated to equal about 26 days of current crude exports along with other strategic storage facilities.

In the meantime, the longer the processing facility remains disrupted, the larger the potential impact on actual crude flows will be.

[READ MORE: U.S returns to Nigerian Oil, imports N349 billion crude oil in three months]

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