London’s Brent Future Leaped $12 After The Open
In an extraordinary start to trading on Monday, London’s Brent futures leaped almost $12 in the seconds after the open, the most in dollar terms since they were launched in 1988. Prices have since pulled back about half of that initial surge of almost 20% but were still heading for the biggest advance in more than three years.
“We have never seen a supply disruption and price response like this in the oil market,” said Saul Kavonic, an energy analyst at Credit Suisse Group AG. “Political risk premium is now back on the oil market agenda.”
The dramatic move in oil reverberated around financial markets. Haven assets including gold, the yen, and Treasuries surged on concern over the geopolitical fallout from the attacks. Currencies of commodity-linked nations including the Norwegian krone and the Canadian dollar also advanced. U.S. gasoline futures jumped almost 13% before paring their increase to around 9%.
For oil markets, it’s the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbor. It also exceeds the loss of Iranian oil output in 1979 during the Islamic Revolution, according to the International Energy Agency.
That would rattle oil markets further and cast a shadow on Aramco’s preparations for what could be the world’s biggest initial public offering. It’s also set to escalate a showdown pitting Saudi Arabia and the U.S. against Iran, which backs proxy groups in Yemen, Syria, and Lebanon. Iran-backed Houthi rebels in Yemen claimed credit for the attack, but U.S. President Donald Trump and Secretary of State Mike Pompeo have already pointed the finger directly at Iran.
“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure — that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Ed Morse, Citigroup Inc.’s global head of commodities research, wrote in a research note.
The attacks “set the stage for a Monday morning mini-massacre of any market participants holding short positions or bearish expectations,” said John Driscoll, chief strategist at JTD Energy Services Ltd. in Singapore. The “price move was exacerbated by the unprecedented magnitude of the outage on the world’s key supplier and the potential for escalation of geopolitical skirmishes involving the U.S., Saudi, and Iran.”
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