Oil falls but prices still elevated after attacks on Saudi facilities

A satellite image shows damage to Saudi Aramco’s Haradh gas facility on September 14, 2019. (Planet Labs Inc./AFP)
Updated 17 September 2019

Oil falls but prices still elevated after attacks on Saudi facilities

  • Attacks on Saudi Arabian crude oil facilities that cut the kingdom’s output in half
  • ‘The question is how long it takes for the supply to get back online’

TOKYO: Oil fell more than 1 percent on Tuesday as the market hung on tenterhooks over the threat of a military response to attacks on Saudi Arabian crude oil facilities that cut the kingdom’s output in half and sent prices soaring by the most in decades.
The Saturday attack heightened uncertainty in a market that had become relatively subdued in recent months due to slowing global growth as the US-China trade war rages. Saudi Arabia is the world’s top oil exporter and has been the supplier of last resort for decades.
Brent crude was down 73 cents, or 1.1 percent, at $68.29 a barrel by 0405 GMT, and West Texas Intermediate was down 87 cents, or 1.4 percent, at $62.03 a barrel.
Prices surged nearly 20 percent in intraday trading on Monday in response to the attacks, the biggest jump in almost 30 years, before closing around 15 percent higher. Equities and other markets were also pressured on Tuesday.
“The question is how long it takes for the supply to get back online,” said Esty Dwek, head of global market strategy at Natixis Investment Managers.
“However, the (geopolitical) risk premium ... which has been basically ignored by markets in favor of growth worries in recent months, is likely to be priced in going forward,” she said.
A gauge of oil-market volatility on Monday rose to the highest level since December of last year, and trading activity showed investors expect higher prices in coming months.
Japan said on Tuesday it would consider a coordinated release of oil reserves if necessary.
US President Donald Trump said on Monday it looked like Iran was behind attacks on the Saudi oil facilities but stressed he did not want to go to war. Tehran has rejected the charges that it was behind the drone strikes.
Relations between the United States and Iran have deteriorated since Trump pulled out of the Iran nuclear accord last year and reimposed sanctions on its oil exports.
Washington also wants to pressure Tehran to end its support of regional proxy forces, including in Yemen where Saudi forces have been fighting Iran-backed Houthis for four years.
“With the US ‘locked and loaded’ awaiting signs from Saudi Arabia that Iran was involved, tensions in the Middle East could get worse before they get better. Under these circumstances, the price of oil could remain elevated for some time yet,” City Index analyst Fiona Cincotta said.
“However, let’s not also forget that the demand picture isn’t great right now, which will dampen the oil price quickly. Most recently China’s industrial production figures disappointed overnight,” Cincotta said.
The attack on state-owned producer Saudi Aramco’s crude-processing facilities at Abqaiq and Khurais cut its output by 5.7 million barrels a day and threw into question its ability to maintain oil exports.
The company has not given a specific timeline for the resumption of full output.


Huawei in early talks with US firms to license 5G platform: executive

Updated 19 October 2019

Huawei in early talks with US firms to license 5G platform: executive

  • Currently there are no US 5G providers and European rivals Ericsson and Nokia are generally more expensive
  • Huawei has spent billions to develop its 5G technology since 2009

WASHINGTON: Blacklisted Chinese telecoms equipment giant Huawei is in early-stage talks with some US telecoms companies about licensing its 5G network technology to them, a Huawei executive told Reuters on Friday.
Vincent Pang, senior vice president and board director at the company said some firms had expressed interest in both a long-term deal or a one-off transfer, declining to name or quantify the companies.
“There are some companies talking to us, but it would take a long journey to really finalize everything,” Pang explained on a visit to Washington this week. “They have shown interest,” he added, saying conversations are only a couple of weeks old and not at a detailed level yet.
The US government, fearing Huawei equipment could be used to spy on customers, has led a campaign to convince allies to bar it from their 5G networks. Huawei has repeatedly denied the claim.
Currently there are no US 5G providers and European rivals Ericsson and Nokia are generally more expensive.
In May, Huawei, the world’s largest telecoms equipment provider, was placed on a US blacklist over national security concerns, banning it from buying American-made parts without a special license.
Washington also has brought criminal charges against the company, alleging bank fraud, violations of US sanctions against Iran, and theft of trade secrets, which Huawei denies.
Rules that were due out from the Commerce Department earlier this month are expected to effectively ban the company from the US telecoms supply chain.
The idea of a one-off fee in exchange for access to Huawei’s 5G patents, licenses, code and know-how was first floated by CEO and founder Ren Zhengfei in interviews with the New York Times and the Economist last month. But it was not previously clear whether there was any interest from US companies.
In an interview with Reuters last month, a State Department official expressed skepticism of Ren’s offer.
“It’s just not realistic that carriers would take on this equipment and then manage all of the software and hardware themselves,” the person said. “If there are software bugs that are built in to the initial software, there would be no way to necessarily tell that those are there and they could be activated at any point, even if the software code is turned over to the mobile operators,” the official added.
For his part, Pang declined to predict whether any deal might be signed. However, he warned that the research and development investment required by continuously improving the platform after a single-transfer from Huawei would be very costly for the companies.
Huawei has spent billions to develop its 5G technology since 2009.