Hi Taylor - How does the attack on the oil facilities in Saudi Arabia affect global prices? Should I be budgeting extra money for gas for a while? - Susan
Hey Susan - This situation has people rightly rattled, though it’s a little hard to predict how drastic or long-term the effects will be. Short answer, we saw a spike in oil prices and could soon see a related bump in gas prices. In the long run, it looks like we’re going to be okay.
• Production halted but supply didn’t cease. A massive amount of oil supply dropped off as a result of the attack, which is why the price per barrel shot up about 20% right away. However, the spike settled down and price didn’t exceed its previous high from last October. The facilities and oil field attacked account for around 5% of the world’s production, so anytime something happens on this scale people are bound to panic. The fact that prices went down after the Saudis and American government announced they would release millions of reserve barrels into the market shows that panic isn’t likely to be sustained.
• Consumer impact will depend on how long it takes to get power restored. The strike didn’t spill millions of barrels of oil into desert sand, but it took the production plant offline and damaged essential equipment. Oil ports still have plenty of barrels at the ready, but the disruption reduced the barrel-per-day (BPD) output by 5.7 million barrels, so that will definitely be felt if it takes too long to get things up and running. I don’t know if every family in America needs to adjust their budgets for escalating gas prices, but anyone who runs a company with a fleet of vehicles might have to give that some thought and keep an eye on the facility repairs in Saudi Arabia.
• Energy markets and foreign affairs are inextricably tied. This event has really shined a light on how important oil is and how much the world relies on a product coming from a volatile area. Personally, it affirms my belief that every investor should look at energy commodities as an alternative investment; any shakeup in the global market illustrates how important and valuable these resources are. In a month or so we might have forgotten all about this particular attack, but don’t lose sight of the lessons we can learn from it.
I’ll be following this story as it continues to develop because it’s clearly not being brushed aside as a small incident. I certainly hope it won’t affect your bank account too directly, but it’s certainly worth keeping an eye on. Thanks for the question, Susan!
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