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CanadaSo, this attack on Saudi Arabia's oil — what does it mean to us Regular Canadians?

15:45  17 september  2019
15:45  17 september  2019 Source:   nationalpost.com

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On 14 September 2019, drones were used to attack the state -owned Saudi Aramco oil processing facilities at Abqaiq (Biqayq in Arabic ) and Khurais in eastern Saudi Arabia . The Houthi movement in Yemen claimed responsibility

But the US and Saudi Arabia have both blamed Iran itself. "I think the strong person approach, and the thing that does show strength, would be showing a little bit of restraint," he The multiple drone and missile attacks on Saudi Arabia ' s oil installations have exposed a major gap in its defences.

So, this attack on Saudi Arabia's oil — what does it mean to us Regular Canadians?© Reuters Fires burn in the distance after a drone strike by Yemen's Iran-aligned Houthi group on Saudi company Aramco's oil processing facilities, in Buqayq, Saudi Arabia, Sept. 14, 2019.

EDMONTON — When markets opened Monday morning, observers were quick to note that oil prices were pogo-sticking around, causing no small consternation.

“It is the biggest shock to the oil markets since (Hurricane) Katrina. And, like Katrina, it will likely haunt us for months, at least weeks,” Tom Kloza, chief oil analyst for the Oil Price Information Service, told CNN.

Oil could rise $10 per barrel after drone attack reportedly forces Saudi to cut output in half

Oil could rise $10 per barrel after drone attack reportedly forces Saudi to cut output in half Oil prices are expected to jump as much as $10 per barrel after a coordinated drone strike hit Saudi Arabia's largest oil field, reportedly forcing the kingdom to cut its oil output in half. Ten drones attacked an oil processing facility at Abqaiq and the nearby Khurais oil field on Saturday, reportedly causing a loss of almost five million barrels of crude production a day or about 5% of the world's daily oil production. Although it's still too early to tell the extent of the damage and how long the facilities will be shut down, oil analysts and traders told CNBC the impact on the commodity's price could be double digit.

The attack on the world' s largest oil processing plant early Saturday morning is a dramatic But where did this attack originate and who was behind it ? The Houthis have sent dozens of drones Analysts take that to mean elements of the restive Shia population in Saudi Arabia ' s Eastern Province.

Trump says Saudi oil attack "won't affect us and ultimately I don't think it will affect the world either". From CNN' s Matthew Hoye. MANDEL NGAN/AFP/Getty Images. President Trump on Monday downplayed the dangers of the attack on Saudi Arabian oil facilities wreaking havoc in international

The reason: on Saturday, someone used drones to blow up oil facilities in Saudi Arabia, operated by the state-owned Saudi Aramco enterprise. Saudi Arabia is the second-largest producer of oil in the world, after the United States.

Houthi rebels in Yemen — where Saudi Arabia has been intervening militarily — claimed responsibility. (Iran backs the Houthis, adding a layer of complication here.)

But does this matter to me, a Regular Canadian?

Short answer, short term: Not really.

Long answer, long term: We’ll have to wait and see. The attack took about five per cent of global oil production offline over the weekend. That’s half of Saudi Arabia’s exports and 5.7 million barrels of oil per day. (Alberta, for comparison, produced 2.8 million barrels per day in 2017.)

Why the Saudi oil attack is a ‘big deal’ that could be a ‘game changer’ in stock markets and crude prices

Why the Saudi oil attack is a ‘big deal’ that could be a ‘game changer’ in stock markets and crude prices An intensifying Middle East conflict is threatening to throw the world’s energy market into disarray after a weekend drone attack destroyed parts of Saudi Aramco’s Abqaiq plant — one of the world’s largest processors of oil.

The attacks have demonstrated Saudi Arabia ' s extraordinary vulnerability, a The US can deliver punishing strikes against Iran' s military infrastructure. But Iran has the means to strike back too. All Iran may think it needs to do is to damage or sink a few US vessels to make the price of this conflict

The United States has issued satellite images and cited intelligence to back its allegation Iran was behind attacks on major Saudi oil facilities. But unnamed US officials speaking to US and international media say the direction and extent of the attacks cast doubt on Houthi involvement.

Please explain …

As with everything in economics, when supply goes down and demand remains the same, prices will increase.

“It creates a short-term supply deficit,” said Allan Fogwill, president and CEO of the Canadian Energy Research Institute in Calgary.

That’s what happened first thing Monday morning.

When oil prices do wild things, this is of concern to regular people, not just those in offices in Calgary and New York, because it also affects the price of other crude oils, such as Western Canada Select, produced in Alberta.

So, this attack on Saudi Arabia's oil — what does it mean to us Regular Canadians?© Reuters Smoke is seen following a fire at Aramco facility in the eastern city of Abqaiq, Saudi Arabia, Sept. 14, 2019.

All of these corresponding effects are likely to push gas prices up a bit.

But!

The reason this probably won’t matter too much to you at the moment is because there are oil reserves in hand. Saudi Arabia says it has enough oil to tide everyone over.

Expect to feel today's oil price spike at the gas pumps

Expect to feel today's oil price spike at the gas pumps Gasoline prices could rise one or two cents this week because of the spike in crude prices caused by an attackt on the world's biggest production plant, but analysts are expecting volatile crude prices in weeks to come, which makes longer-term price increases difficult to predict.

The attack on Saudi Arabia was just the latest in a string of recent attacks carried out by Iran or a proxy — including attacks on oil tankers and the Like those of other countries, Saudi Arabia ’ s defenses were designed to stop ballistic missiles. This attack appears to have been carried out with

Even Saudi Arabia has been more careful, linking Tehran to the attack , but not calling it an act of war or saying, as unnamed US officials have claimed, that 'That wasn't an attack on us '. The kingdom has made clear to the US that it does not want a war, sources familiar with Saudi - US discussions say.

The United States keeps 695 million barrels of oil in underground caverns in Texas and Louisiana just for this purpose — to stabilize oil prices in case of catastrophe. (The U.S. will use these as necessary, the Trump administration said.)

This means the supply will more or less remain the same, with the gap between actual production and demand smoothed over from this rainy-day collection of oil, so the prices won’t go haywire enough to trickle down much to the regular consumer.

Oh?

Yeah. “The initial spike in the price has been muted after analysts start looking at ‘what does it mean in the short term?'” said Fogwill.

But of course, this is a short-term smoothing-over.

The U.S. reserves, for example, would last 143 days.

If it takes an especially long time to get oil production in Saudi Arabia back up online, then a supply issue — and therefore a price issue — could arise. (Not super relevant to your regular person, but there has been an oversupply issue for some time, said Fogwill, and this could actually bring the market back into balance.)

So, this attack on Saudi Arabia's oil — what does it mean to us Regular Canadians?© Gavin Young/Postmedia Gas prices are expected to rise with the recent attack on oil facilities in Saudi Arabia, but not by a lot.

Couldn’t everyone just buy their oil from Alberta, where Iran is unlikely to attack?

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That’s actually one of the arguments people have been making about Alberta oil for a long time. Secure, safe, ethically produced, etc.

“(The attack is) a bit of a reminder for the crude oil buyers and sellers that there is still geopolitical risk in the Middle East,” said Fogwill. “When you get a period of calm, people tend to forget that.”

But could Alberta have profited from this?

It’s hard to say. Maybe?

Why’s that?

Who buys Saudi oil? Asian countries. Some 75 per cent of Saudi oil exports go to Asia, wrote RBC Capital Markets analyst Michael Tran in an email to the Financial Post.

“The unprecedented outage over the weekend would have been a boon for Canadian crude if the TMX pipeline was operational given the close proximity to Asia,” Tran wrote. “The ability to move Canadian crude to fill a supply gap does not only bring financial benefits for Canada, but also serves the world from an energy security perspective.”

So, if we had more pipeline capacity, then there would have been a way to take advantage, Fogwill explained, but “TMX is much more of a long-term infrastructure need for the industry.”

Still, Alberta Energy got in on this: “ With the third-largest oil reserves, Canada can do much to supplant high-risk sources overseas. But our country actually needs to build pipelines to help supply a world economy hungry for reliable sources of energy,” said a written statement.

So this means nothing?

Well …

“We have to wait and see how the market’s going to react,” said Fogwill. “There’s a lot of complicating factors.”

In conclusion: wait and see.

With files from the Financial Post and the Calgary Herald.

• Email: tdawson@postmedia.com | Twitter: tylerrdawson

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