Oil prices were on track for more than 7 per cent jump this week, their biggest in months, as early trading on Friday saw gains extended on fresh tensions in the Middle East after a key Saudi Arabian supply hub was attacked last weekend.
Friday's rises came after a Saudi-led coalition launched a military operation in north of Yemen's port city of Hodeidah, and as the US worked with Middle East and European nations to build a coalition to deter Iranian threats after the Aramco attack.
Brent crude is on track to rise about 7.7 per cent this week, the biggest weekly gain since January. Whereas, West Texas Intermediate - the benchmark tracking largely North American crude grades - was up 66 cents to $58.79 a barrel, set to post a 7.1 per cent gain for the week, the largest weekly rise since June.
“Traders are hedging that the initial estimates for the duration of repairs [at damaged Saudi facilities], given the complex nature, could well underestimate the time required," said Stephen Innes, Asia Pacific market strategist at Sydney-headquartered financial firm AxiTrader.
Saudi Arabia's production dropped by almost half after Saturday attacks targeted an oil stabilisation facility in Abqaiq in Saudi Arabia as well as the Khurais oilfield, located 200 kilometres south-west. The incident took 5.7 million barrels per day of Saudi output offline, the equivalent of 5 per cent of global supply.
The 7 million bpd capacity Abqaiq facility is the largest of its kind where crude sourced from some of the world’s expansive oilfields in the Eastern Province of Saudi Arabia is "sweetened". The processing removes volatile compounds from crude, making it safer for transport.
The outage was the biggest supply shock to the global oil markets, according to the International Energy Agency, superseding similar volumes during the 1979 Iranian revolution and the 1991 invasion of Kuwait by Saddam Hussein, according to the IEA.
By Tuesday, Saudi Arabia said it had recovered about half of the lost output, with production capacity expected to be restored by the end of September.
The kingdom said production capacity of 11 million bpd will come onstream by the month-end and 12 million bpd is expected to be reached by November.
Saudi Arabia’s new Energy Minister Prince Abdulaziz bin Salman, only in the second week of his job, declared the attacks “an act of war” on Tuesday. He said Aramco will continue to honour its export requirements and would reduce domestic refinery runs by 1 million bpd to 1.9 million bpd.
The US and Saudi Arabia blame Iran for the attack on Saudi oil facilities. However, Tehran denies any involvement.
US President Donald Trump said he would increase sanctions on Iran, accusing the country of being responsible for attacks on Saudi Aramco facilities.
In the US, meanwhile, torrential rain from Tropical Storm Imelda has forced a major refinery to cut production and shut a key oil pipeline, terminals and a ship channel in Texas.
Global markets are also keeping an eye on US-China trade negotiations in Washington, as officials from both sides resumed face-to-face talks for the first time in nearly two months on Thursday.
(with inputs from Reuters)
