Home Markets Dow Slips After Attack Spikes Fear for Global Oil Production

Dow Slips After Attack Spikes Fear for Global Oil Production

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Saudi Arabia’s top petroleum facilities, Abqaiq and Khurais, suffered significant damages after the kingdom’s missile defense systems failed to deter drone and cruise missiles that “unquestionably” came from Iran. 

Colonel Turki al-Maki, during a press conference on Wednesday, stated that 18 drones and seven missiles were sent to strike Saudi Arabia’s oil infrastructure. The air attack included unmanned aerial vehicles (UAV) from the Iranian Delta Wing.

As a result, stocks fell on Monday due to investors fearing that the attack will bring about an increase in oil prices, which can hinder worldwide economic growth.

The Dow Jones Industrial Average broke its 8-day winning streak as points fell to 142.70 or 0.5% to 27,076.82. Alongside Dow, the S&P 500 slid to 0.3% to 2,997.96, while the Nasdaq Composite dropped 0.3% to 8,153.54.

“It’s contained, right now,” said Krosby, chief market strategist at Prudential Financial. “That’s a function of the U.S. increasing its oil production. We are much less vulnerable to outside influences.”

Economics believe that the rise in oil prices can hurt the global economy significantly. The fate of the economy relies on how long the production stoppage will last, and how much of the gap can other producers fill.

U.S. producers such as West Texas Intermediate futures rose to 15.5% to $63.34, the biggest rise they had since 2008. Brent crude futures, on the other hand, jumped to a record-setting 19.5% to %71.95.

Saudi Arabia’s national oil company, Saudi Aramco, stated that they would try to get a third of domestic oil production running by Monday. 

Following the attack on Saudi’s key oil producers, Trump said in a tweet: “Based on the attack on Saudi Arabia, which may have an impact on oil prices, I have authorized the release of oil from the Strategic Petroleum Reserve,” if needed.

Amidst the ongoing trade war between the U.S. and China, this attack can add strain to already slow growth in the manufacturing sector. Economists fear that major economies are teetering on a recession.

The attack “is the largest supply shock ever. The world is dependent on strategic reserves right now and you will see SPR draws,” said Bob Ryan, the chief commodities and energy strategist at BCA Research. “The market could tighten significantly if the outage is indeed weeks and not days.”

The U.S. oil reserve, which the country has been keeping since the 70s, aims to prevent oil price hikes from affecting the GDP. Although the U.S. economy is no longer heavy affected by gas prices as it was before, high costs of crude encourage investment in the oil industry. 

On a global scale, this attack may lead to bigger problems on top of already existing ones. For one, China is experiencing a continuous decline in production. Industrial production fell to a record low after 17.5 years, with 4.4% production against an expected gain of 5.2%.

Both Dow and S&P 500 finished at 0.7% below their record highs on Friday’s close, with Nasdaq only 2% from its all-time high.