Summary for the 16th of September -Historical surge in oil prices


The weekend’s attack on Saudi petroleum processing facility has led the oil price to soar and with  the highest movement in percentage since Iraq’s invasion of Kuwait in 1990.

The reason for this strong rise in oil price is because a significant amount of Saudi’s oil production is put to a halt. Aramco says the attack has cut the oil production by 5.7 million barrels a day, which is more than half of Saudi’s daily oil production, and more than 5 % of global oil supply. Saudi Arabia produces more than 10 % of the global oil supply, as well as it is the world largest oil exporter.

Both the US and the IEA says that they are standing ready to tap emergency oil reserve if necessary. Saudi Arabia will also most likely have an emergency meeting with OPEC to discuss an increase in oil production. So, even though the oil production has fallen sharply from the Saudi Arabia, the global oil supply won’t be declining by 5% a day.

The attack shows that the tension has become high in the Middle East after the US has withdrawn from the Iran nuclear deal. The attack also shows how securities on the oil production sites aren’t equipped to handle this kind of geopolitical tension.

For the past years, the price of oil correlates positively with the financial market and the risk sentiment of the investors. The demand for oil is determined by the growth outlook of the global economy, which in turn determines the risk sentiment of the investors in the financial market.

Indices for 16th of September
Dow: +0.1 % (13th of September)
S&P 500: +0.1% (13th of September)
Nasdaq: +1.1% (13th of September)
Nikkei: +1%  (16th of September)
Chinese indices: -1.1% (16th of September)
STOXX Europe 600 Index: -0.58% (16th of September)

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