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Oil Prices Zoom on Saudi Oil Attack, Plus Empire & Purdue

Monday, September 16, 2019

A new wrinkle in global economic strain emerged over this past weekend, when the world’s largest oil processing plant — called Abqaid, located in Saudi Arabia and run by oil supermajor Saudi Aramco — was attacked by drone strikes and had nearly 50% of Saudi oil production knocked out. It is already considered the single-worst hit on global oil supply in history.

The total amount affected amounts to roughly 5% of global daily oil supply, and oil markets are behaving accordingly. Brent crude prices shot up 19.5% following the news, with the WTI up 10% ahead of Monday’s opening bell. Saudi officials believe they will be able to restore about 1/3 of its supply back this week, but it remains to be seen when full capacity will be on line.

Responsibility for the attack is also unclear at this hour: Houthi rebels in Yemen — where the Saudis have been fighting a proxy war at the south end of the Arabian peninsula — have claims responsibility, though U.S. and Saudi officials have already stated they do not believe the Houthis would have been capable of such a large-scale attack. Israeli Prime Minister Netanyahu, along with U.S. Secretary of State Mike Pompeo, have strongly inferred pro-Iran forces were behind the drone strike. Previously, the United Nations (UN) had issued a stern warning regarding increased capacity of Houthi drones.

Domestic frackers, which had been among the most heavily shorted stocks in recent markets, are up on the news this morning: Chesapeake Energy CHK is up 17.4% currently, Whiting Petroleum WLL up 24.7% and Range Resources RRC +12.3%. In other market news, Saudi Aramco has announced it is now considering another delay to its long-awaited IPO, as reported by The New York Times.

Empire State Index Disappoints Again

Regional production metric Empire State survey put up a headline of 2 this morning for the month of September, below expectations of 13.7. Over the past 10 years, this index has kept within a band between a high of 33 (October 2009) and a low of -16.9 (January 2016).

This miss from expectations is consistent with what we’ve seen this summer, with August reporting +4.8 when +25.7 was expected, and July reached +4.3 when analysts were looking for +30.8. Thus, productivity in New York State, while still positive, has been much less than anticipated over the past three months.

Purdue Pharma Files Chapter 11

Privately owned Purdue Pharma — the company that made billions from the sale of prescription opioid OxyContin — has filed for Chapter 11 bankruptcy protection. This latest event occurs as the company faces massive lawsuits regarding the addictive nature of its products having helped lead to an opioid crisis in the United States over the past several years.

Purdue, family owned and operated after being founded by the Sackler brothers in 1952, had tentatively reached agreements in over 2000 opioid lawsuits, in which the company was prepared to pay out as much as $12 billion. But The Washington Post reported a few weeks ago that if a settlement agreement could not be reached, Purdue would declare bankruptcy “very quickly.”

Mark Vickery
Senior Editor

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