Drones wiped out half of Saudi Arabia's oil production - and it could lead to higher gas prices
- A drone strike that knocked out half of Saudi Arabia's oil production could lead to higher oil prices globally, according to analysts.
- The production shutdown amounts to about 5% of the world's daily production of crude oil, or roughly 5 million barrels.
- The Saudi index fell 2.3% at the opening on Sunday before recovering, Reuters reported.
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On Saturday, a drone strike on two major Saudi Arabian oil refineries knocked out about half of the country's oil production.
The production shutdown amounts to about 5% of the world's daily production of crude oil, or roughly 5 million barrels. The attack came as state-owned oil giant Saudi Aramco has been plotting a massive initial public offering. Yemen's Houthi rebel group claimed responsibility for the attack.The Saudi index fell 2.3% at the opening on Sunday before recovering, Reuters reported. The move erased any stock gains on the index for the year, Bloomberg reported.
Reuters reports that other Gulf markets, including Kuwait and Dubai were down 0.4% and 0.5% respectively on Sunday following Saturday's attack.
Beyond the Gulf states, the attack could have a big impact on energy prices around the globe, with some analysts estimating that the price of crude oil could jump $10 when trading opens Sunday evening.
"This is a big deal," Lipow Oil Associates president Andrew Lipow told CNBC on Saturday. "Fearing the worst, I expect that the market will open up $5 to $10 per barrel on Sunday evening. This is 12 to 25 cents per gallon for gasoline."
The extent of the higher prices might not have the same effect on the US economy that it has had in the past, in part because of the rise in US oil production, The Wall Street Journal reported Sunday. In the 1970s, sky-high oil prices caused by an embargo imposed by Arab oil producers led to a stock-market crash.But if it results in higher energy prices, Ryan Kellogg, an economist at the University of Chicago told The Journal, it could be a key part of a global slowdown, which in turn could affect the US.
"To the extent those slowdowns are going to ripple through the trade system, we could see some of those impacts in the U.S. as well," Kellogg told The Journal.
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