In this blog, we’re going to take a look at commodities markets and how they’re effected by enormous fireballs. It’s usually a bit tricky to see exactly how the goings-on on the other side of the planet will affect our day-to-day lives in Britain, but where recent events in Saudi Arabia are concerned, this doesn’t really apply. When five percent of the global oil supply gets wiped out overnight, it’s not hard to work out that the price of crude oil is going to go up, and so too is the fuel that we use to fill up our diesel-powered vans.
Aramco is the state-owned oil company in Saudi Arabia. It’s responsible for 10% of the world’s oil production, and is the reason the country is so fabulously wealthy. You might, with the benefit of hindsight, wonder whether they might have used some of this enormous wealth to stop someone flying over with a drone and blowing up millions of dollars-worth of black gold – needless to say this is an episode that might persuade us all to take security that little bit more seriously.
The facility that was attacked, Abqaiq, is where almost three-quarters of the country’s oil goes to be processed shortly before it’s exported. As well as the oil itself being destroyed, there are widespread fears that there will be longer-term disruption to the supply as the Saudi authorities attempt to patch things up.
According to some sources, the attack caused a spike of around 15%, which would make it the biggest one-day gain since Saddam Hussein’s infamous attack on Kuwait in 1990. Donald Trump was, as you might imagine, quick to take to Twitter to explain the situation. “PLENTY OF OIL!” he declared, in a characteristically reserved tweet.
Will I feel the impact at the pump?
After this momentary blip, the price of oil has, more or less, recovered to around sixty-five dollars a barrel. Historically, prices have proven pretty resilient to short-term shocks like this one: the global market has been able to deal with Venezuela’s oil reserves falling off the map thanks to that country’s recent troubles.
There are two things you might want to bear in mind. First, changes in the price of crude tend to take quite a long time to filter through to the petrol pump. We’re talking weeks and months. So, for us to feel the difference in the UK, we’d need to see a long, sustained squeeze on the supply of crude, rather than a temporary setback like this one.
The second thing to bear in mind is that most of what we pay at the pump in the UK is fuel tax, which sits at around sixty percent. Once the exchequer has taken its cut, there’s the cost of transporting, refining and pumping the oil, as well as keeping the lights on at the petrol station. When everyone’s taken their cut, it’s only a tiny chunk of the price you pay at the pump which will be affected by the price of crude – which means even if the price of crude did go up by 15% over a longer period, the chances are that most of us wouldn’t notice it!