CITI: The Saudi oil-field attacks show investors have been 'persistently mispricing' oil by ignoring a 'highly vulnerable' infrastructure - and now all bets are off
- The drone strike on one of Saudi Arabia's primary oil facilities has shed light on a critical risk for the world's largest producer that investors have been ignoring, according to analysts at Citigroup.
- The analysts says the market has been "persistently mispricing" oil by underestimating the vulnerability of Saudi Arabia's infrastructure to this sort of attack.
- The firm also said oil should have been $10 a barrel higher than it has been for months, and now the commodity's prices could hit that level in the wake of the attack.
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The attack on Saudi Arabia's oil facilities has sent crude prices soaring. It's also brought into a focus a key risk investors have been ignoring.
Analysts at Citi said the market has been "persistently mispricing" oil by overlooking the risk such an attack poses to Saudia Arabia's massive oil operation.
"There is but one rational takeaway from this weekend's drone attacks on the Kingdom's infrastructure - that infrastructure is highly vulnerable to attack," the analysts said in a client note on Sunday.
The firm expects oil prices to rise by $10 a barrel due to the tightening output from the drone strike. And although that's a new forecast, the firm says the resource should've already been trading at that level for months.
The attack hit Saudi Arabia's operation in Abqaiq, the largest oil producing facility in the world. According to Citi, the plants "play a pivotal role" in the day-to-day operations of the country, which controls close to 6% of the world's daily oil consumption.
"The fact is that the Abqaiq complex is the heart of Saudi production, is well protected but by no means immune to significant attack and damage," Citi said.
Crude prices spiked as much as 20% in early trading following the attack on the Saudi facilities. The US has pinned the attack on Iran, elevating the risk of conflict with the country. President Trump said the US is 'locked and loaded" in response to the attacks.
