Oil prices have fallen back from their immediate highs following the attacks on Saudi Arabian oil processing and production facilities earlier in September. Nerves have been calmed by the promise of the release of strategic stocks, if required, and by Saudi statements that production levels are returning to normal levels relatively quickly.
Washington appears to have stepped back from direct retaliation and has chosen to tighten sanctions instead. Iran’s announcement September 23 that the British-flagged oil tanker Stena Impero was free to go will also help de-escalate tensions. Given the size and potentially escalatory nature of the event, the market’s reaction has been relatively sober.
The price reaction to any extreme event is governed by the context in which it occurs and how it impacts short, medium and long-term perceptions of the supply/demand balance.
Minor supply disruptions, or a combination of minor disruptions, can have an exaggerated effect in an already tight market. Even major events, like the attacks on Abqaiq and Khurais, can have only a muted impact, if the supply loss period is short, stocks are plentiful and made available, and most other factors point in a bearish direction.
Beyond the immediate event impact horizon, bearish market factors – the slowdown in the global economy and the increase in non-OPEC production both inside and outside of the US - are unaffected.