The oil price could remain “elevated” and “volatile” for some time, according to commentators, following the attacks on oil facilities in Saudi Arabia which wiped out 5% of global supply.
The price of Brent crude soared as high as 20% yesterday (16 September) in the aftermath of the attacks, which were carried out on facilities owned by energy producer Saudi Aramco on the 14 September.
In a statement, the company said: "Saudi Aramco emergency crews contained fires at its plants in Abqaiq and Khurais, as a result of terrorist attacks with projectiles. These attacks resulted in production suspension of 5.7 million barrels of crude oil per day."
Ian Forrest, investment research analyst at The Share Centre, said Brent crude was trading at over $68 a barrel in early trading yesterday, before falling back later.
"The Saudis lost production of over 5m barrels of oil per day and there has been a lack of clarity over how long it will take to restore that capacity. There are also fears of further attacks which could take out more capacity and lead to a shortage of oil in the global system," he added.
Adrian Lowcock, head of personal investing at Willis Owen, said: "Tensions in the Middle East have been rising and the attack on the Saudi oil refinery is likely to leave the oil price elevated for some time, as it will be difficult to predict if and when there will be further attacks."
He told investors to consider the wider impact.
"A high oil price will affect the global economy and act as a drag on business, as oil remains the lubricant which keeps economies functioning," added Lowcock.
In a series of tweets yesterday, US President Donald Trump announced he had authorised the release of US oil reserves.
But Forrest warned that while the US had taken steps to release oil from its strategic reserve, "the oil price is likely to remain volatile for some time, so investors should tread carefully".
Commentators have been speculating about how long any reserves might last.
Lee Wild, head of equity strategy at Interactive Investor, warned the full repercussions will depend very much on the length of time that Saudi production is out for.
"For now, Saudi will supply customers out of inventories, which will last about 28 days, and total OECD supplies cover about 60 days of total demand."
Yerlan Syzdykov, Amundi's head of emerging markets team, pointed out that "initial hopes of restoring production levels quickly have been put in doubt by the latest (unofficial) communication from Aramco and Saudi officials".
He said: "It seems that we could only count on a limited restoration within the next few weeks and full restoration could take up to several months."
Didier Saint Georges, member of the investment committee at Carmignac, warned: "The attack has damaged the heart of the Saudi processing system, therefore Saudi crude reserves are hardly relevant if they cannot be processed. However, the availability of US strategic reserves is such that short-term risk to supply should probably not be overestimated."
Winners and losers
"Royal Dutch Shell and BP, whose share prices had fallen 13% and 8% respectively since the end of July, were up sharply on Monday," said Wild.
"Mid-cap oil stocks dominated the list of risers on Monday. Tullow Oil's share price rose 10%, Premier Oil 9%, Wood Group 5%, with Cairn Energy, Hunting and Petrofac close behind. Elsewhere, SOCO International did well."
Forrest noted that while the shares in companies involved in oil production benefited, providing some "much needed cheer" for investors in those stocks, it was too soon to draw any firm conclusions.
"Despite the lift for oil stocks the market overall was down, which perhaps reflects concerns that if there is a shortage of oil for any length of time, and the price remains high, it would further weaken an already fragile global economy," he added.
Syzdykov noted that the aggregate impact of higher oil is normally negative on emerging market equities, whereas it is neutral to positive for emerging market fixed income.
In terms of country-specific vulnerability, Syzdykov said India and Turkey stand to be the biggest losers given their high dependence on oil, while Russia and Nigeria are the biggest beneficiaries.
Wild also pointed out airlines and cruise operators were the biggest losers from a sharply higher oil price, due to a hike in the cost of fuel.
"Travel companies and jet owners like easyJet, International Consolidated Airlines, TUI, Carnival and Wizz Air are all trading lower," he added.