Speculation about Brent prices rising to $100 per barrel of oil has risen following attacks on Saudi Aramco which have removed 5.7mn barrels per day of crude from the market.
"The events in Saudi Arabia have ratcheted up tensions in the Middle East to a new level raising concerns about supply security," said Chris Midgley, global head of analytics at S&P Global Platts. "While in the short term the direct physical impact on the market might be limited, this should move the market away from its bearish macroeconomic cycle and raise the risk premium in the market as funds reduce their short positions.
"While some commentators may call for triple digit oil prices we would suggest that the sudden change in geopolitical risk warrants not only an elimination of the $5-10/Bbl discount on bearish sentiment, but adds a potential $5-10/Bbl premium to account for now-undeniably high Middle Eastern dangers to supply and the sudden elimination of spare capacity," he added.
Saudi Arabia will be able to keep up its exports in the short term by using its inventories, but evidence of a longer-term disruption would hit OPEC's spare capacity, and S&P Global Platts says it would diminish the International Energy Agency's ability to use strategic petroleum reserves to "shore up the market."
"As such prices are likely to break out of the current $55-65/Bbl options range, to test the high $70s as currently supported by fundamentals. Price could move higher if Saudi production is confirmed to be curtailed for a more substantial period which is not our current assumption."