Forex Analysis & Reviews: 16.09.2019 - Oil market in shock: prices...

16.09.2019 10:45 AM

Oil market in shock: prices soared above 13%, and this is not the limit

The price of black gold has shown another record. On Monday, September 16, raw materials rose by more than 10%. The reason for this was the attack of drones at a refinery in Saudi Arabia.

The forced reduction in oil production by Saudi Arabia contributed to a sharp increase in the cost of Brent futures at the opening of trading on Monday. The price of black gold rose by more than 10%, and reached 15%. As a result, the cost of oil exceeded the mark of $ 70 per barrel. Currently, trading in oil futures is held near the level of $ 67 per barrel. The maximum growth of quotations reached 19%, experts say.

According to analysts, what happened on the black gold market has no precedent in history. The attack on the refineries of the kingdom with the help of drones-drones was carried out by Yemeni Hussite rebels on Saturday, September 14. As a result, Saudi Arabia had to cut its crude production by more than half - by 5.7 million barrels per day compared with the usual volume of 9.8 million barrels per day.

There was no similar failure in the supply of raw materials either during the Gulf War in 1990, or during the Islamic Revolution in Iran in 1979. Experts emphasize that the current rise in prices has become a record for the entire history of trading in Brent futures, which has been conducted since 1988.

It can be noted that at the opening of trading on Monday, November futures for the North Sea Brent mixture were trading at $ 67.8 per barrel, which is much higher than the $ 60.15 mark recorded at the close on Friday. Almost simultaneously, they grew by 19.1%, to $ 71.62 per barrel.

In the near future, the Saudi authorities intend to eliminate problems in the supply of raw materials. Since the kingdom is the world's largest oil exporter, even a temporary reduction in production in such volumes can cause powerful growth impulses in the market. This situation provoked panic among traders and investors. At present, the market has lost about 20% of oil production, or 29.6 million barrels per day. Global production of black gold fell by almost 6%, experts emphasize.

According to preliminary estimates, if problems are fixed within a week, oil prices will rise by $ 3– $ 5. In the case of longer troubleshooting (up to 2-6 weeks), oil quotes will add from $ 5 to $ 14, analysts at the largest Goldman Sach bank are sure. If force majeure lasts more than six weeks, oil prices will gain a foothold above $ 75 per barrel, according to Goldman Sach.

However, these figures are not the limit. According to calculations by Onyx Commodities, if the problem cannot be resolved in the near future, then the market should prepare for $ 100 per barrel.

The skyrocketing price of black gold may be temporary, other analysts reassure. A significant increase in the cost of raw materials at the opening of Monday is largely due to the traditional locking of short positions, experts say. Traders who opened a large short were losers. This forces many of them to fix their positions, accelerating oil prices even higher.

Thus, many experts believe that we should now expect an increase in the geopolitical premium in oil quotes. Its rise is possible due to the risk of the resumption of situations such as the current one, as well as against the background of a confrontation between the US and Iran. Since the beginning of this summer, the stability of oil supplies from the Persian Gulf has been threatened, but now, the level of tension can reach new heights, experts summarize.

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Larisa Kolesnikova,
Analytical expert of InstaForex
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