The Sept. 14th attack on Saudi facilities is likely to affect consumers.
By Paul Imison
The attack on Saudi facilities on Sept. 14 caused caused the biggest oil supply disruption in over 50 years, and consumers could see the cost of everything from gasoline to heating and air fares rise following a global spike in oil prices as a result of the drone attack on Saudi facilities on Saturday. Yet the prices of many other goods could also increase as a knock-on effect of rising transportation costs.
Saudi Arabia is the world’s biggest exporter of crude oil and one of its leading producers. Saturday’s attack reportedly removed half of its output, equal to 5.7 million barrels per day (bpd), or five percent of global supplies. Prior to the attack, Saudi Arabia was shipping 7 million per day, much of it to Asian markets.
Saudi Arabia is also home to nearly all the world’s spare oil capacity – which means it has the capability to increase output quickly to compensate for any problems in supply worldwide. Any further disruption would impact prices and supply even further.
Crude, the biggest factor
Crude oil is refined into fuel, including gasoline and diesel. When crude prices shoot up, the cost of fuel rises with them. Taxes and fuel standard regulations are also important factors in the price at the pump, yet according to American Automobile Association spokeswoman Jeanette Casselano, speaking to Reuters, crude is the biggest factor.
“Crude accounts for 50% of the (US) retail price, so as crude goes up, so does the retail,” Casselano said.
As a result of the crisis, US motorists could see gasoline prices rise by as much as 25 cents starting this week. The US gasoline RBc1 and diesel futures HOc1 contracts on the New York Mercantile Exchange rose by more than 12% and 10%, respectively, on Monday.
Prices for fuel, especially diesel, which fuels heavier-duty vehicles, will also affect transportation costs for companies to ship products from manufacturing facilities and farms. Manufacturing industries that use a lot of energy could also pass on costs to consumers.
A Saudi-led coalition has blamed Iran for the attacks which it alleges were carried out by Yemen’s Iran-aligned Houthi group, a position supported by Washington. US President Donald Trump has said that the US is “locked and loaded” to strike back.
Members of the Paris-based International Energy Administration are required to keep at least 90 days of crude oil and/or products imports in storage for such emergencies. The US government has already said it could use its petroleum reserves if needed, and Saudi Arabia also has enough storage to cover exports for a certain period of time.
However, global markets will still be affected because it is not known how long Saudi Arabia will need to repair the damage to its facilities and resume exports.
Saudi Arabia attempted to calm the situation on Tuesday, with sources in the kingdom saying output was recovering much more quickly than first forecast and could be fully back in two or three weeks.