Oil Special: Saudi Attack Disrupts Forex Flows

Crude Oil has gone ballistic higher after the unprecedented implications of the multiple Houthi rebel-claimed drone attacks to the world’s biggest crude production facility in Abqaiq and Saudi Arabia’s second-biggest production facility in Khurais. The immediate pattern during Intermarket hours has been quite predictable, with the Canadian Dollar, the Norwegian Krone and the Yen bought strongly.

Quick Take

Traders are waking up this Monday to an 'eye-popping' move in the price of Oil, with Brent Crude up over 20% soon after the open, following the unprecedented accuracy in an attacked perpetrated in multiple Saudi Oil refinery facilities, claimed by Houthi rebel from Yemen. The attack happened in the world’s biggest crude production facility in Abqaiq and Saudi Arabia’s second-biggest production facility in Khurais. The ramifications were felt throughout the marketplace, from currencies to stocks and bonds. The immediate pattern during Intermarket hours has been quite predictable, with the Canadian Dollar, the Norwegian Krone and the Yen bought strongly. The first two on the basis of its strong correlation with Oil as one of the largest exporting nations, while the Yen gets a bid as the geopolitical risks are heightened as the US points its finger to Iran. In terms of the main losers, the Oceanic currencies AUD, NZD were hit due to the increase in risk aversion, with the Turkish lira and Indian rupee especially fragile due to the nations’ profile as heavily dependable on Oil imports. The key topic of discussion that the market is seeking out answers for is the length of the disruption before full capacity is back on track. Will it be just a matter of days, weeks, or months? Obtaining clarity in this front is essential to adjust the outlook for Oil and the wider market profile.

The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

Narratives In Financial Markets (Oil Special)

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

Oil skyrockets at the open in Asia: Oil has opened more than 10% higher after the unprecedented implications of the multiple Houthi rebel drone attacks to the world’s biggest crude production facility in Abqaiq and Saudi Arabia’s second-biggest production facility in Khurais. Photos released by Trump administration show the extent of the weekend attack on the Saudi oil industry. 

When could the Saudis return to full capacity? While still unclear how much production has been lost, reports indicate Saudi Arabia has temporarily lost out of circulation around 5.7mb/d of oil output, which accounts for about 5% of world output. Even if the press reporting on the matter suggest most of it can be recovered within days, it may take weeks to return to full capacity.

Insights view by Danske Bank: As Danske Bank’s Senior Analyst Jens Nærvig Pedersen notes: “Even if only a temporary output loss, we see it as a significant blow to the oil market in several ways. Firstly, the oil market is used to output disruptions, but nothing of the magnitude witnessed in Saudi Arabia over the weekend. For example, disruptions in Libya due to rebel attacks are normally 200-300kb/d. Secondly, Saudi Arabia normally holds some spare production capacity, which it can deploy when output is disrupted elsewhere in the oil market. The market knows this, which means it tends not to overreact to supply disruptions. After this weekend, the market may be more hesitant in trusting this self-stabilizing mechanism. Thirdly, the market is used to geopolitical tensions in the Middle East. Besides the effect of outside sanctions, it is rare that they affect oil production. The oil market may become more averse to geopolitical news going forward.”

Iran's involvement investigated: Saudi officials are refusing to be easily persuaded by the immediate claims that Yemen's Houthi rebels are the only ones to blame as the orchestrators of the attacks, suspicious that Iran or Iraq may also be involved. Reports speculate that cruise missiles, which according to US officials, appear to have come from a west-northwest direction, not south from Yemen, were spotted, casting doubt on Houthi claims they launched drone attack from Yemen.

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The Daily Edge is authored by Ivan Delgado, Head of Market Research at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth ...

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