Tuesday 15 October 2019
 
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Saudi attack 'highlights role of geopolitical risk on oil prices'

RIYADH, 28 days ago

The attack on Saudi Arabian’s major oil facilities highlights the role of geopolitical risk on oil prices, which will likely reflect a risk premium even after Saudi production resumes, said a top official of ratings agency Moodys.

“Higher oil prices will help producers and hurt refiners in the very near term, but the longer term effect on energy companies will depend on the timing and magnitude of Saudi Aramco’s lower production,” remarked Moody's Managing Director Steve Wood.

The rating agency pointed out that while the drone attacks were a credit negative and the production disruption was significant, it does not expect this to leave a long-lasting impact on Saudi Aramco’s financial profile given its robust balance sheet and strong liquidity buffers.

"This event however highlights the credit linkages the company has to Saudi Arabia both in terms of geographic concentration and more importantly exposure to geopolitical risk," said Rehan Akbar, a Moody’s vice president.

Meanwhile, a UK-based financial services firm, pointed out that oil prices had surged by more than 20% as risk premium kicks in after the Saudi attacks.
 
"This was mainly because the risk premiums rose after the attacks directly impacted more than 5% of the global oil supply," explained Mihir Kapadia, the CEO of Sun Global Investments.

An international financial services firm based in London, Sun Global Investments provides a full scope of services to institutional investors, corporate companies, family offices and high net worth individuals.

Fears of a steep hike in oil prices were however allayed by Kapadia owing to the long process involved in marketing.

"Prices will not be passed on to the consumer markets immediately, due to the long supply chain involved (with international shipping, storage and refining)," he added.

Kapadia pointed out that the consumer market impact would also depend on how quickly the Saudi facilities connect back to the grid; if it is under a week it shouldn’t have much impact as global stocks can easily fill in the gap temporarily.

"If the scale of damage indicates repairs which will take longer,  we will see a significant shift in the global markets. As of now, all the price rise figures are speculative reactions," he noted.

"The attack also shows how vulnerable critical global infrastructure can be, as one wouldn’t expect such a scale of damage in Saudi Arabia, especially considering they together account for 50% of the country’s oil output," he added.-TradeArabia News Service




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