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Oil prices rocket on slashed Saudi output

Oil prices rocket on slashed Saudi output

LONDON: Brent crude surged by 20% the biggest gain since the 1991 Gulf War – after weekend drone attacks on two Saudi oil facilities halved output in the world’s top crude exporter, fuelling fresh geopolitical and growth fears.

West Texas Intermediate (WTI) oil meanwhile soared 15% also after President Donald Trump warned that the US was “locked and loaded” to respond to the attacks that Washington blamed on Iran.

Both key oil contracts pared gains but were still up by more than 8% around 1030 GMT.

The price surges weighed across world stock markets on fears that a sustained higher cost of crude could further impact weak global economic growth.

But share prices of energy majors jumped, with traders seeing higher profits down the line for the likes of BP and Shell, whose stock won between 3-4% Monday.

In foreign exchange, the dollar was down against the euro and yen, while the pound slid as Prime Minister Boris Johnson was holding Brexit deal talks with EU chief Jean-Claude Juncker.

Gold, which along with the yen is seen as a haven in times of geopolitical and economic unrest, won 1% to $1,503.70 an ounce.

Market focus was firmly on oil, however, after the weekend attack that was claimed by Tehran-backed Houthi rebels in neighbouring Yemen, where a Saudi-led coalition is bogged down in a five-year war.

“Oil price shocks like this are bad news for growth,” Trading Group Chief Market Analyst Neil Wilson, told AFP.

“It raises stagflation risks too – higher oil prices suppress growth and raise inflation. Of course it depends how long this lasts, does the risk-premium mean higher prices for the rest of the year or does it fade quickly if it comes back on stream this week?”

“The attack wiped out around half of Saudi Arabia’s production – representing around 5% of global daily output — and highlighted the vulnerability of security at these facilities to drone attacks,” noted Oanda Senior Market Analyst Craig Erlam.

“Spikes in oil prices when the global economy is already flirting with the idea of recession is not ideal and, if repeated and sustained, could ultimately be what tips us over the edge,” he added.

Facing a dauntingly uncertain economic horizon amid the US-China trade war, the Federal Reserve is set to cut interest rates this coming week.