The September 14 attack on oil facilities in Saudi Arabia, which knocked out 5% of the world’s oil supply in one fell swoop, was certainly one for the books. It has also sent shockwaves throughout different corners of the energy space around the world, making it a textbook example of a supply shock from which investors can take away numerous lessons.
“It remains to be seen exactly how long it will take this oil production to come completely back online and what the attack may mean in terms of further instability in the region, as well as the escalation of geopolitical risks in the global oil market,” said Fiona Boal, head of Commodities and Real Assets at S&P Dow Jones Indices (SPDJI).
In a recent blog post, she noted the extreme price responses on the first trading day after the attack. The S&P GSCI Brent Crude Oil closed 14.2% higher on Sept. 16; the energy-heavy S&P GSCI, meanwhile, advanced 7.9%. The move in the S&P GSCI Brent Crude Oil index, she noted, could also be viewed as an “aberration” given how rare such a drastic one-day change is, particularly as it represented the largest one-day percentage gain in the benchmark in at least 30 years.
“Not all energy assets are created equal when it comes to their immediate responsiveness to a supply shock,” Boal continued.
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Looking at price moves across numerous S&P DJI energy indices, she noted that the post-attack shock in oil supply had a relatively muted effect on major equity and fixed-income energy indices.
The S&P 500 High-Yield Energy Corporate Bond Index and the S&P 500 Energy Corporate Bond Index barely budged on September 16, each advancing by less than 1%. The S&P Global BMI Energy (Sector) TR, the Energy Select Sector Index TR, and the S&P 500 Energy TR Index saw individual increases of more than 3%.
Commodities indices, meanwhile, saw more dramatic changes. The S&P GSCI TR Index rose by nearly 8%, while the S&P GSCI Petroleum TR Index shot up by more than 12%. The S&P GSCI Brent Crude Oil TR Index increased even more substantially, accelerating by a little more than 14%.
Many analysts are convinced that the past weekend’s attack will have long-term ramifications, particularly as it throws the security surrounding the Arabian oil supply into question. Turning back the pages of history, Boal cited the 1990 oil-price shock, which saw the S&P GSCI Crude Oil Index surge by 140% following the Iraqi invasion of Kuwait.
But she also acknowledged that there have been several short-lived spikes in oil prices as a result of supply shocks, though “admittedly not of the size that was witnessed on Sept. 16, 2019.”
“It remains to be seen what long-term impact, if any, the Saudi attacks will have on oil prices and the value of energy companies’ equity and debt,” she said.
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