Good Idea for Sunday: Fill 'er Up!

Good Idea for Sunday: Fill ‘er Up!

Everyone should go to the gas station and fill your tanks today. There’s no need for panic, but you might save a little money by doing that.

The attack on Saudi Arabian refining and other oilfield infrastructure by Huthi rebels supported by Iran Saturday has forced the Saudi government to shut-in half of its daily crude production. That amounts to about 5.7 million barrels of oil per day (bopd) suddenly disappearing from the global, 100 million bopd market.

Unlike the series of previous Iranian attacks on crude tankers, drones and other facilities that have taken place since April, this one is a big deal. Because none of those previous acts disrupted a significant amount of oil production or movement, crude markets had no measurable reaction to them.

But 5.7 million bopd is a huge quantity of crude, a volume that far out-strips the ability of the few countries with idle capacity to offset. Although the Saudi government attempted to assure markets that it would be able to return to normal production levels by Monday, Reuters quotes a “source close to the matter” as saying that recovery from Saturday’s drone attack will take “weeks, not days.”

Regardless of which case is accurate, it is likely that oil prices will spike to some degree when Asian markets open for Monday trading late this afternoon simply based on the uncertainty of the situation. How high it will spike is anyone’s guess, but a supply disruption of this magnitude could lead to something very significant.

Gasoline prices in the U.S. fluctuate with the global price of crude, so any spike in the oil price is going to quickly feed down to higher prices at the pump. Don’t complain to me – that’s just how the market works.

The rhetoric flying following Saturday’s attacks is also significantly harsher than what we saw following Iran’s previous hostile actions. Secretary of State Mike Pompeo issued the following pair of tweets Saturday afternoon:

Secretary Pompeo

@SecPompeo

Tehran is behind nearly 100 attacks on Saudi Arabia while Rouhani and Zarif pretend to engage in diplomacy. Amid all the calls for de-escalation, Iran has now launched an unprecedented attack on the world’s energy supply. There is no evidence the attacks came from Yemen.

Secretary Pompeo

@SecPompeo

We call on all nations to publicly and unequivocally condemn Iran’s attacks. The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression

Iran’s foreign ministry spokesman Abbas Mousavi told Iranian state television that the U.S. accusations were “pointless” and that his country stands ready to conduct “full-fledged war,” according to Reuters.  Reuters also quotes an Iranian military official as saying, “Everybody should know that all American bases and their aircraft carriers in a distance of up to 2,000 kilometers around Iran are within the range of our missiles.”

President Donald Trump has rejected counsel from some advisors to mount military retaliations after previous Iranian provocations. After these latest attacks, the President called Crown Prince Mohammed bin Salman Saturday evening to pledge U.S. “readiness to cooperate with the Kingdom, by all means conducive to maintain its security and stability.”

All of this back-and-forth between the involved countries, combined with the Reuters report serve to increase uncertainty. And if markets hate anything, it is uncertainty.

Again, there is no call for panic here, but the best thing for readers to do when they get up and dressed this morning is to drive over to the nearest gas station and top off the tank. If you wait to do it tomorrow, you might be sadly surprised at the price you’ll have to pay.

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