The last two weeks were promising, as global political tensions have finally eased through a more constructive tone between the US and China, the withdrawal of the bill that sparked riots in Hong Kong, the decreasing probability of a no-deal hard Brexit, etc. However, the developments on early Saturday re-introduced a degree of risk-aversion, when Saudi Arabia’s crude oil processing plants were attacked. The attack was disruptive with about 58% of the Saudi oil output being affected. As a result, the price of WTI crude spiked from USD 55/bbl and consolidated around USD 60/bbl in the early Monday morning trading. In our opinion, the magnitude of the abrupt price reaction implies that a political risk premium has been integrated into crude oil prices, since the disruption of supply will be likely fast overcome: there have been reports that the Saudi production could recover and a large amount of production could come back in a matter of days, the US stated that it stands ready to act if needed (i.e. tap its strategic reserves) and the OPEC+ countries can opt for the relaxation of production cuts. Overall, we see the disruption in the oil market as a transitory phenomenon.
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