Crude oil prices are expected to see a sharp spike of $5-7 per barrel on September 16 when the global markets open for trade, reacting to the major drone attacks on two Saudi Aramco oil facilities in eastern Saudi Arabia, Emkay said.
The drone attacks caused a major fire at both facilities -- Abqaiq and Khurais -- in early hours of September 14.
The report said that the Houthi rebels have officially claimed responsibility for the attack and threatened more attacks unless Saudi and its allies stop their offensive against them. The Houthis are allegedly backed by Iran.
The Abqaiq and Khurais oil processing plants have capacities of 7 million barrels per day (mbpd) and 1 mbpd, respectively.
Supplies have been disrupted, with two citing a 5 mbpd impact, Emkay reported quoting unnamed sources. 5 mbpd is over half of Saudi Arabia’s current production of 9.8 mbpd and 5 percent of global oil supplies.
Also read: Saudi Arabia halts production at attacked Aramco oil plants, says energy minister
"A 5 percent hit on global oil supplies is significant and oil prices are expected to spike once markets open on September 16," Emkay Global said.
Historically, prices have jumped over 10 percent after such major events. Hence, a $5-7 per barrel jump can happen. Although it may stabilise if the affected production is brought back quickly, the brokerage added.
Hence, the above price calculation suggests that Brent crude futures, the international benchmark for oil prices, could increase to $65-67 per barrel from September 13’s close of $60.22 a barrel.
This is expected to impact not only oil retailers but also global equity markets including India -- which imports more than 85 percent of its oil requirement -- as 5 percent of global oil supply disruption is big, experts feel.
A sudden spike in oil prices is negative for oil marketing companies (IOCL, BPCL, HPCL), but higher oil prices are positive for GAIL, Emkay said.
A $65-70 per barrel range is ideal for ONGC and Oil India, it added.
The brokerage said it has a Brent price estimate of $65/bbl for FY20 and YTD average is in line.
Abqaiq handles crude from Ghawar -- the largest oil field in the world -- and supplies to export terminals in Ras Tanura and Red Sea.
Investigations and emergency meetings are underway, though Aramco could be considering drawing inventories to meet supply commitments, the reports suggest.
The production halt is a preventive measure and in 48 hours operations could normalise, the report added.
The concern that important Saudi oil facilities are now vulnerable to attacks by rebels would increase the geopolitical risk premium on oil prices, Emkay said.
Saudi Arabia and its allies may also retaliate, leading to more tensions and a broader clash with Iran can be severe, according to the brokerage.
It said the US may toughen its stance on Iran, contrary to the belief that the Iran-US standoff may have subsided after the recent resignation of US National Security Advisor (NSA) John Bolton.