Saudi Arabia is shutting down half of its oil production after drones attacked the world’s largest oil processing facility in the kingdom, The Wall Street Journal reported.
The closure will impact almost five million barrels of crude production a day, about 5% of the world’s daily oil production, the WSJ reported, citing sources familiar with the matter.
Early Saturday, an oilfield operated by Saudi Aramco, the state-owned oil giant, was attacked by a number of drones, which sparked a huge fire at a processor crucial to global energy supplies.
Yemen’s Houthi rebels have claimed responsibility for the attack, saying it was one of their largest attacks ever inside the kingdom, the WSJ reported.
“We promise the Saudi regime that our future operations will expand and be more painful as long as its aggression and siege continue,” a Houthi spokesman said. The attack deployed 10 drones, the Houthis said.
The Saudi interior ministry said the fires were under control, according to state-run Saudi Press Agency, adding the investigations into the terrorist attack are ongoing.
Saudi officials are considering drawing down their oil stocks to sell to foreign buyers to make sure world oil supplies won’t be disrupted by the attack and shutdown, the WSJ reported.
Aramco did not immediately respond to CNBC’s request for comment.
“This is a big deal,” said Andrew Lipow, president of Lipow Oil Associates. “Fearing the worst, I expect that the market will open up $5 to $10 per barrel on Sunday evening. This is 12 to 25 cents per gallon for gasoline.”
Lipow noted over four million barrels per day of Saudi oil exports go to Asia, while the U.S. imports about 600,000 barrels. The biggest importers in Asia are China at 1.3 million barrels and Japan at 1.2 million barrels.
The International Energy Agency said Saturday it is “closely monitoring” the situation following drone attacks, adding markets are “well supplied with ample commercial stocks.”
The White House condemned the attack and said President Donald Trump spoke with Crown Prince Mohammad bin Salman to offer U.S. support for Saudi Arabia’s self defense.
“Violent actions against civilian areas and infrastructure vital to the global economy only deepen conflict and mistrust. The United States Government is monitoring the situation and remains committed to ensuring global oil markets are stable and well supplied.
The Iran-backed Houthis had been behind a series of attacks on Saudi pipelines, tankers and other infrastructure in the past few years as tensions rise among Iran and the U.S. and partners like Saudi Arabia.
The Islamic Republic, a target of U.S. sanctions for decades, has recently attacked oil tankers in the Strait of Hormuz, shot down a U.S. military drone and announced plans to execute 17 suspected U.S. spies.
The latest attack came as Saudi Arabia moves forward to take Saudi Aramco public in a major shakeup of the kingdom’s energy sector. The world’s most profitable oil company is expected to be valued at more than $1.5 trillion, CNBC previously reported. Crown Prince Salman has pushed for a valuation of as much as $2 trillion.
