The attacks on Saudi Arabia’s oil infrastructure led to the biggest jump in global prices since 1988 by wiping out 5.7m barrels of production a day – 5% of the world’s oil supply.
The price of Brent crude surged by more than $12 (£9.60) a barrel within seconds as trading began in London, quickly climbing to highs of $70.88 – a rise of more than 19% – before settling lower in a day of record-breaking oil trading. By Monday evening oil was trading at nearly $69, up 15% on the day.
Oil futures trading reached a new all-time record on the Intercontinental Exchange as traders placed more than 2m bets on the future price of oil as a hedge against more market volatility.
Meanwhile, the energy price shock reverberated through global markets, driving up shares in energy companies on the prospect of higher profits, while stock exchanges across Europe plunged into the red as investors took fright over rising geopolitical tensions.
Oil market analysts claim prices could surge towards $100 a barrel in the coming weeks if Middle East tensions lead to renewed disruption in the strait of Hormuz, a key transit route for the world’s oil tankers.
Geoffrey Smith, a director at the market data firm Refinitiv, said Saudi Arabia has “resumed loading oil from its storage reserves to make up for the break over the weekend – but in the longer terms its exports are in doubt.
“The question is how long Saudi Arabia can maintain export levels and quality while the damage is fixed. The most likely effects are to be felt from November onwards as storage might start hitting critical levels if the processing facility has not been repaired,” Smith said.
A Middle East energy crisis could be a boon for the US fracking industry, but threatens to tip the stumbling global economy into a recession by stemming supply to Asian economies. Rising oil prices also threaten consumer spending – a key growth factor for economies – because they could force up prices and depress demand for goods.
Donald Trump said the US was “locked and loaded” to retaliate and could authorise the release of US oil reserves to help balance the market. But energy experts cast doubt on whether US fracking companies – who produce oil by breaking up shale rock formations underground - would be able to fill the gap left by Saudi oil production plants.
Bjørnar Tonhaugen, the head of oil markets at the research firm Rystad Energy, said the world was “not even close” to being able to replace Saudi exports.
“The market’s reaction to Saudi Arabia’s importance, in the new era of US shale, will now be put to the test,” he said.
The global economy has been faltering against a backdrop of rising trade tensions between the US and China. Demand for oil had been falling in recent months as industrial production slowed while the world’s two biggest economies imposed punitive tariffs on one another’s goods.
Economists said higher oil prices could compound the pressure on manufacturing output, which had already plunged into recession territory as a result of the trade war, serving as a further brake on global growth.
Philip Shaw, the chief economist at the City bank Investec, said: “Against a background where you have global trade on a downward trajectory because of the tariff war between the US and China, it’s not helping at all.”
The spike after the Saudi attacks returned the oil price to levels last seen in July, which analysts said could mitigate some of the impact on global growth. However, Shaw said growth around the world could slip below 3% this year, marking the weakest expansion since the depths of the global financial crisis in 2009.
Some energy experts believe the global oil price shock may even help efforts to shift economies from fossil fuels to green energy alternatives.
Artur Baluszynski, the head of research at investment firm Henderson Rowe, said Europe may “feel the pain of higher energy prices” in the short term, “but in the long term, more expensive fossil fuels will accelerate Europe’s already leading position in renewables like wind and solar”.
Callum Macpherson, the head of commodities at Investec, said: “Only time will tell, but we may look back on this incident as a critical development in motivating the energy transition.”
A spokesman for the RAC, Simon Williams, said the steep market price hike for petrol and diesel will not necessarily hit drivers at the pumps unless oil prices are allowed to remain high in the long-term. “The wholesale prices of both petrol and diesel look set to increase by 3p a litre, [but] this doesn’t necessarily mean higher prices at the pumps because retailers only just began to pass on overdue wholesale price savings at the end of last week,” Williams said.
Supermarkets cut fuel prices by around 3p on Friday to127.77p a litre for petrol and 131.26p for diesel. Williams added: “If the barrel price remains high for a sustained period however, it could easily lead to several pence a litre being added to the average price of both fuels.
“We are hopeful the fact the US is releasing emergency oil stocks and that Saudi Arabia operates a global storage network will mean that drivers here in the UK will not be too harshly affected,.”