​Oil set for biggest weekly gain since January after Saudi attack

Oil was on track for its biggest weekly increase since January as traders waited to see whether Saudi Arabia can fulfill promises to swiftly repair a critical processing facility attacked last weekend.

The world’s biggest crude exporter has vowed to restore its Abqaiq plant this month after an aerial strike composed of drones and missiles disabled 5% of global supply and triggered Brent’s biggest-ever one-day jump. Yet consultants such as Rystad Energy and FGE caution that recovery could take longer than expected, and the kingdom’s resort to sourcing refined fuels and condensates from the market is fanning concerns about the length of the disruption.

The ratcheting up of instability in the world’s most important oil-producing region has raised the risk premium for prices, which are almost $5 a barrel higher than before last weekend’s attacks on the Saudi facilities. There’s also prevailing concern about how long it will take the kingdom to fully restore lost production, as it depletes inventories to meet supply commitments and operates without its usual buffer of spare capacity.

“The actual longer-term impact of the attacks on the Saudi oil infrastructure is still difficult to judge because the country is likely to play down any potential problems,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

Brent crude for November settlement rose 0.7% to $64.82 a barrel on the ICE Futures Europe Exchange at 10:34 a.m. in London, and is up 7.7% this week. Options traders have become the most bullish on Brent in eight years, with the price of one-month benchmark calls relative to puts at the highest since 2011.

West Texas Intermediate for October delivery gained 33 cents, or 0.6%, to $58.46 a barrel on the New York Mercantile Exchange. The American benchmark is up about 6.6% this week, the most since June.

Brent crude was at a $6.15 premium to the U.S. marker for November, while the cost of prompt supplies of the London grade against later shipments increased earlier this week to the highest level since late June.

Saudi and U.S. officials have said that the drones and missiles used in the assault on Saudi facilities were made by Iran, though stopped short of saying the attacks were launched directly from or by the Islamic Republic. Iranian Foreign Minister Mohammad Javad Zarif warned on CNN that a U.S. or Saudi strike on his country would initiate “all-out war.”

“The mounting rhetoric between the U.S. and Iran adds to the market’s nervousness, but I see less than a tail-risk of military conflict in the region,” said Vandana Hari, chief executive officer of Vanda Insights in Singapore.

Some of the gains in prices have also been tempered by a storm flooding the U.S. Gulf Coast, threatening to curb demand for crude. The remnants of Tropical Storm Imelda dumped more than 3 feet of rain on parts of the Texas coast, cutting refinery operations and shutting a key pipeline.

© 2019 Bloomberg L.P.

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