By Callum Keown
The majority of stocks have fallen in the wake of Saturday’s drone attacks on two Saudi Arabian oil facilities but brave investors could still benefit from surging crude prices.
The attacks, which the U.S. has blamed on Iran, hit key Saudi facilities, disrupting 5% of the global daily oil production.
European stocks fell on Monday as the drone strikes presented another headwind for the global economy and raised geopolitical tensions.
Brent crude /zigman2/quotes/209704782/delayed UK:BRN00 0.00% surged 20% overnight to highs of $71.95 per barrel before falling back to $66.37—a 10.2% rise.
Major oil companies, such as BP /zigman2/quotes/202286639/delayed UK:BP +0.88% and Royal Dutch Shell , and multinational energy companies, including John Wood Group /zigman2/quotes/203993058/delayed UK:WG +2.28% and Norway’s Equinor /zigman2/quotes/202462536/composite EQNR -0.56% surged on Monday and will enjoy further gains if the drone attacks cause a supply crisis and continued price rally.
However, the future direction of prices will hinge on how badly the attacks impact production, and the possibility of further escalation.
Goldman Sachs commodity strategist Damien Courvalin said a production outage of 2-6 weeks could move brent crude prices $5 to $14 per barrel higher, while a longer delay would see prices quickly rally above $75 per barrel, triggering more demand for shale.
Crude prices are likely to remain volatile as markets await further news on the impact of the attack.
Citi analysts said heavily shorted or negatively positioned small and mid cap explorers and producers, such as Extraction Oil & Gas , Whiting Petroleum /zigman2/quotes/204602363/composite WLL +1.81% , Callon Petroleum /zigman2/quotes/201917664/composite CPE +3.64% and Carrizo Oil & Gas would rise the most.
Whiting Petroleum and Carrizo Oil & Gas had the highest sensitivity to oil prices, Citi said in a note.
Heavily shorted drillers and logistics companies, including RPC /zigman2/quotes/201485709/composite RES +6.22% , U.S. Silica Holdings /zigman2/quotes/206361964/composite SLCA +0.96% and Solaris Oilfield Infrastructure /zigman2/quotes/202245479/composite SOI +4.62% , could also see an uplift.
Investors were spooked by the weekend attacks, flocking to safe havens as geopolitical tensions were once again ramped up.
An aggressive response from Saudi Arabia, and escalation of tensions with Iran, could have even greater ramifications for global markets.
President Donald Trump has already said the U.S. was “locked and loaded”, raising the possibility of military intervention.
Sun Global Investments chief executive Mihir Kapadia said the market impact would depend on how quickly the Saudi facilities could connect back to the grid.
He said: “If it is under a week it shouldn’t have much impact as global stocks can easily fill in the gap temporarily.
“If the scale of damage indicates repairs which will take longer, we will see a significant shift in the global markets—as of now all the price rise figures are speculative reactions.”