The Middle East conflict would have “catastrophic consequences” for the oil market the longer it continued, as well as “drastic” effects on the global economy, Saudi Aramco’s chief executive said on Tuesday.
Amin Nasser’s warning is the first public comment from the world’s largest oil company on the ongoing conflict sparked by the recent US-Israel attacks on Iran.
He said on a media call that Aramco would be able to export about 5 million barrels a day of crude from the western Saudi port of Yanbu within days as it responded to the “biggest crisis the region’s oil and gas industry has faced”.
The threat posed by Iran to shipping around the Strait of Hormuz has left Aramco’s other ports stranded, making this its only available export route.
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Saudi Arabia usually exports a total of some 7 million barrels of oil a day.
Meanwhile, Wall Street stocks advanced and oil prices plummeted on Tuesday after US president Donald Trump on Monday declared the Middle East war could be “over soon”, despite defiant comments from Iran’s military that cast some doubt over the prospects of a swift resolution.
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The Dow Jones Industrial Average gained 0.4 per cent, the S&P 500 added 0.3 per cent, and the Nasdaq Composite rose 0.4 per cent in morning trading. Europe’s STOXX 600 index pared some earlier gains after declining for three consecutive trading days. MSCI’s broadest index of Asia-Pacific shares outside Japan rose about 3.4 per cent.
Oil prices dropped 11 per cent on Tuesday after soaring to a more than three-year high in the previous session. Brent futures LCOc1 were last trading about $88 (€75.40) a barrel, while US West Texas Intermediate (WTI) crude CLc1 fell to $83.74 a barrel.
Aramco, the world’s biggest oil producer, is responsible for about a 10th of global supply, meaning any disruption to its operations is watched closely by oil markets.
Trump’s remarks injected a burst of optimism that contrasted sharply with events in Iran, where hardliners rallied behind new leader Mojtaba Khamenei, and the Revolutionary Guards said a blockade of oil exports would persist until US and Israeli attacks end, in a pointed show of defiance towards the American leader.
“While all of this has helped ease some of the short-term panic, it’s hard to reconcile the idea of the conflict being ‘very complete’”, said Tony Sycamore, market analyst at IG in Sydney.
“Nonetheless, the toning down of president Trump’s rhetoric, from demanding full surrender to declaring the mission ‘very complete’, is a welcome development that should help settle nerves for today’s session in Asia, at least.”
The backdrop for markets remained tense, however, with Iran’s military warning it would step up its missile strikes, in a further sign of defiance.
US Treasury bonds recovered after Monday’s spike in oil prices sparked an inflation scare and fuelled expectations that central banks in Europe could tighten policy later this year.
“Market pricing suggests weeks of disruptions, not days or months,” analysts from BlackRock Investment Institute wrote. “There’s a risk of a stagflationary shock but it’s not a given, as market pricing indicates,” they added, saying they would remain underweight long-term Treasury bonds and favoured US stocks.
The yield on the US 10-year Treasury bond was down 2.1 basis points at 4.111 per cent even as traders pushed out bets on the timing of the Federal Reserve’s next rate cut, with the first reduction now not seen until July, according to the CME Group’s FedWatch tool.
“We are still at troubling levels,” analysts from ING said, referring to bond yields. “Expect nominal yields to fall for a bit on a reversal trade. But don’t expect a dramatic structural rally in bonds,” they wrote in a client note. “Remember, we still have clear inflation impulses to overcome, and the economy is down but not out.” – Reuters, Financial Times
