Oil to Highs "That We Haven't Seen in Our Lifetimes"
Oil prices are in a light volume haze as many traders celebrate Rosh Hashanah. This comes as the Saudi Crown Prince is making dire warnings about the price of oil if we go to war with Iran. Fitch downgrades Saudi Arabia to “A, Outlook Stable.” They say the rating reflects rising geopolitical and military tensions. Still, the oil market is going to have to deal with conflicting reports about the return of Saudi oil production and more importantly, its ability to process it.
Talk of a shortage of light crude is making the rounds and we could see that create a big demand for U.S. shale crude just as the Wall Street Journal warns about peak shale production. The Wall Street Journal also reports that Aramco executives said a portion of the company's current production can't be cleared of impurities and prepared for refining or export because some of the treatment units have yet to be repaired.
The Wall Street Journal is also reporting that the “Shale Boom Is Slowing Just When the World Needs Oil Most: U.S. oil production grew less than 1% in early 2019 as operational issues weighed on shale companies.” The Journal says that “U.S. oil production is on track to hit an average of 12.2 million barrels a day this year, up from last year’s average of 11 million barrels a day, the Energy Department said earlier this month. But because output grew so quickly last year—from an average of 10 million barrels a day in January to 12 million barrels a day in December—that implies limited growth throughout 2019. The activity has slowed recently, and employment has fallen in some of the hottest U.S. oil regions, according to a September report by the Dallas Federal Reserve.”
Saudi Arabia and Crown Prince Mohammad Bin Salman or MBS as he is known made some headlines in his 60 Minutes interview. When asked if he ordered the murder of Washington Post reporter Jamel Khashoggi, he said "Absolutely not. This was a heinous crime. But I take full responsibility as a leader in Saudi Arabia, especially since it was committed by individuals working for the Saudi government.”
When it came to oil and a potential war with Iran, he claimed that Iran was the culprit behind the attack on Saudi oil facilities. "This attack didn't hit the heart of the Saudi energy industry, but rather the heart of the global energy industry." He claimed that war with Iran would “Oil supplies will be disrupted, and oil prices will jump to unimaginably high numbers that we haven’t seen in our lifetimes.”
A major fire at the new high-speed rail station in Saudi Arabia is raising concerns. So far, the cause of fire at Haramain train station in Jeddah remains unknown but needs to be watched. Because of the recent attacks on the Saudi Oil facilities, the timing of the fire is raising eyebrows.
The Fox Business Network reports that “The average U.S. price of regular-grade gasoline has spiked 10 cents per gallon (3.8 liters) over the past two weeks to $2.73. Industry analyst Trilby Lundberg of the Lundberg Survey says Sunday that jump results mostly from a drone attack this month on Saudi Arabia's key oil processing facility. The attack briefly slashed the nation's crude production in half before being restored.“
"While a lot of that Saudi oil production supply has on back on line, and crude prices came down, the damage to the Saudi oil processing plant may make it more difficult for the Saudis to export that oil, keeping upward pressure on crude and gasoline prices" notes Phil Flynn of The PRICE Futures Group and FOX Business contributor, he also notes it is a reminder of the influence the Middle East continues to have on global crude prices. "Despite the fact that the U.S. is the bigger producer of oil, things that disrupt supply on the other end of the globe can still hit us in the wallet.".