Oil prices jump 13pc following Saudi Arabia attack, but fuel prices should not follow yet
Photo: A $US1 per barrel rise in oil prices usually equals 1 cent a litre at the petrol pump. (ABC News: Alistair Kroie/Nicole Mills)
Oil prices are up 13 per cent, potentially driving petrol prices higher, following an attack that has knocked out about half of Saudi Arabia's crude processing.
On Saturday, a drone attack severely damaged the Abqaiq oil processing facility as well as targeting the Khurais oil fields in Saudi Arabia.
Saudi Aramco has reportedly shut down around 5.7 million barrels per day of production capacity as a result of the attacks, which is more than 6 per cent of global supply, according to ANZ analysts.
ANZ commodity strategists Daniel Hynes and Soni Kumari said that Saudi Arabia is likely to maintain exports by drawing on domestic stockpiles in the short term, however oil prices will rise significantly due to worries about medium-term supplies.
"We expect the market to quickly price in a sizeable geopolitical risk premium," they wrote.
"Any expectation that the market had about the US easing sanctions on Iran following President Trump's dismissal of John Bolton will quickly dissipate.
"This should see Brent crude test the $US70 per barrel mark in the short term. Any further upside will depend on the length of the disruption."
That prediction looks close to the money, with Brent crude futures prices jumping 13 per cent to around $US68 a barrel in Monday morning trade.
Brent crude futures had been trading around $US60 a barrel on Friday.
Motorists could see 8c/litre price jump
CommSec chief economist Craig James said there is a direct correlation between global oil prices and Australian petrol and diesel prices.
"Every US dollar per barrel increase in the price of oil is basically a cent at the Australian petrol bowser," he told ABC News.
However, Mr James said those price impacts should not be felt by local motorists for at least a couple of weeks.
"It takes around about two to three weeks for the [oil] price to come through to the bowser price."
Mr James said that any service stations that increased their prices significantly today "certainly would be price gouging".
In fact, Mr James said that there may not be too much effect on local fuel prices at all if the outage is short lived, and given that both Saudi Arabia and the US have committed to releasing some of their oil stockpiles if needed.
"It may be the case that they're able to get back to [full] production quickly, which means it's not going to have any impact in terms of the Australian pump price," he added.
However, the ANZ analysts said that risk premiums in oil markets had been declining since a price spike in the fourth quarter last year after the US placed wide-ranging sanctions on Iran in September 2018.
Oil prices rose into the mid-$US80 range late last year.
"We feel the market has not fully appreciated the risks to supply; which is understandable considering the noise created by the US-China trade conflict," the ANZ analysts noted.
"This latest event should see market focus turn back to supply-side issues."