U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher shortly before the cash market opening. The market initially gapped higher Sunday evening then spiked to its high for the day before retreating. WTI crude oil took out the opening and reestablished support inside a short-term retracement zone. Brent crude is the stronger of the two. It pulled back but held on to its earlier low.
Crude oil prices soared in response to an aggressive drone attack on a Saudi Arabian oil processing facility at Abqaiq and the nearby Khurais oil field.
This event took out 5.7 million barrels of daily crude production or 50% of the kingdom’s oil output.
Yemen’s Houthi rebels claimed responsibility for the attack, but the U.S. has blamed Iran with Secretary of State Mike Pompeo tweeting Saturday Iran has launched an “unprecedented attack on the world’s energy supply.”
President Trump said there is reason to believe the U.S. knows the culprit and is “locked and loaded,” while waiting to get the verification from the kingdom to proceed.
Oil prices fell substantially from their earlier highs after Trump said he was authorizing the release of oil from the Strategic Petroleum Reserve to keep the markets “well-supplied.”
The next major moves in the market will be determined by the speculators.
Bullish traders will be betting on a prolonged shutdown of the facility or an escalation of tensions between the United States and Iran in the hopes of a major supply disruption in the area.
Furthermore, short sellers are likely to continue to reduce positions as traders raise the risk premium in the market.
In further support of the bulls, an expert from S&P Global Platts said on Monday that the event over the weekend will effectively wipe out the world’s spare oil capacity. Additionally, the country’s national oil company, Saudi Aramco, has 35 to 40 days of supply to meet contractual obligations, according to a source close to the matter.
Bearish traders are counting on the Saudis to restore the facilities as quickly as possible. The current timetable suggests about a third or its crude output, or 2 million barrels will be back by the end of Monday.
They’re also looking for increased production from OPEC and its allies and especially the United States to make up the short-fall. Furthermore, they’re banking on reports from OPEC and the IEA showing a surplus by 2020 because of lower demand to cushion the current shortfall.
This article was originally posted on FX Empire
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