Saudi attacks didn’t impact Malta; long-term problems could impact oil price stability

Smoke is seen following a fire at an Aramco factory in Abqaiq, Saudi Arabia, September 14, 2019 in this picture obtained from social media. VIDEOS OBTAINED BY REUTERS/via REUTERS

Malta’s oil prices have not been directly impacted by the crisis in Saudi Arabia but should it continue, there is a risk that Malta’s pricing safeguards may need to accommodate increases.

That’s what Enemed’s Chairman Kevin Chircop told Newsbook.com.mt, when asked about how the recent explosion at one of Saudi Arabia’s key refineries would impact Malta’s oil prices.

Chircop explained that through the context of Enemed’s key shareholder, the Maltese government, Enemed uses a number of hedging tools which buy futures and in turn, ‘lock’ a maximum retail price for fuel for a longer period of time.

In other words, the company agrees to buy a set number of barrels of oil from the seller on a contract with a future date. The buyer will agree to buy those barrels at the price agreed with the seller on the future contract, when the contract is set to expire.

‘This policy safeguards against sudden market reactions resulting from such incidents,’ Chircop explains adding that it aims, ‘to keep stability of prices for longer periods’.

5% of global oil supply

Enemed’s Chairman spoke to Newsbook.com.mt only a few days after a drone attack on two of Saudi Arabia’s two major oil facilities operated by Aramco.

The attack is known to have halved the country’s crude oil output, impacting 5% of the country’s oil output and cutting daily production by 5.7 million barrels.

Oil prices dropped in Saudi Arabia with the country’s energy minister saying that the gap in production will hopefully be restored by the end of September.

As of the morning of 18th September, Brent Crude futures dropped by almost 0.6%, with each barrel costing just over $64.

The cost of US West Texas Intermediate (WTI) crude futures also fell by 43 cents (0.7%). The price of a barrel now sitting at $58.91.

A satellite image shows an apparent drone strike on an Aramco oil facility in Abqaiq, Saudi Arabia September 14, 2019. Planet Labs Inc/Handout via REUTERS

Who did it?

The United States has said that they believe Iran is behind the attack although it has not provided evidence that links them. Iran had flatly denied any involvement in the attack, with Foreign Minister Mohammad Javad Zarif also responded to the accusations saying that they were a US distraction from the real problems in the Middle East.

‘The United States should seek to look at the realities in the region, rather than simply using distractions. We feel that the US government is trying to somehow forget the realities in the region,’ Zarif told the Iranian Students News Agency ISNA.

Saudi Arabia has responded saying that they would be able to provide ‘material evidence’ that Iranian weapons had been used thus ‘proving the Iranian regime’s involvement in the terrorist attack.’ Following a Saudi request, the French Government has said that it will be providing experts to investigate the attacks.

‘In response to a Saudi request, President Macron confirmed to the crown prince that France will send experts to Saudi Arabia to take part in investigations aimed at revealing the origin and modalities of the attacks.’

Likewise, the country’s Defence Minister Brigadier General Amir Hatami told the Tasnim news agency that the culprits were in Yemen.  He said he was, ‘Rejecting comments about Iran’s role in the operation, [Hatami] said the issue is very clear: There has been a conflict between two countries [Yemen and Saudi Arabia].’

The Houthi rebels fighting the Saudi-led coalition in Yemen, later claimed responsibility for the attacks. They went on to warn Saudi Arabia that they ‘will keep expanding,’ their range of targets.

No real impact unless it becomes protracted 

Enemed’s Chairman added that the price of crude oil had re-established in the days following the attack and the price rallied once the Saudi government said production would return to normal shortly. In effect, ‘there is no impact,’ for Malta.

However, Chircop explained that if the problems persist in the region, this could lead to increases in the price of oil.

‘If the trouble in the region will continue for sustained periods of time, than the oil price will remain at higher levels and which might lead to an increase if the hedging period locked is shorter.’