Oil was down slightly in early London trading while European markets opened lower as investors weighed up the implications of a major attack on Saudi Arabia’s oil infrastructure at the weekend.
Brent crude — the international oil marker — was down 0.7 per cent at $68.58 as markets opened in London, having peeled back as much as 1.7 per cent in Asian trading. West Texas Intermediate, the US benchmark, slipped 0.9 per cent to $62.37.
On Monday, Brent had jumped as much as 20 per cent after a drone strike on Saudi Arabia’s largest oil processing centre, which accounts for about 5 per cent of global crude supply and has been described as the “Achilles heel of the world economy”. Yemeni rebels claimed responsibility for the attack, but the US has said it was orchestrated by Iran.
Investors said that the near-term direction of crude prices would be determined by the extent of repairs needed at the Abqaiq facility, and the reactions of Washington and Riyadh. People briefed on the damage assessments have told the Financial Times that production could take months to return to normal.
“While the ultimate impact will depend on a combination of the extent of damage, the US and Saudi response, and whether further attacks occur, the current production decline will exacerbate the tightening in the oil market that was already under way and could add a more lasting geopolitical risk premium to prices,” said Greg Sharenow, a portfolio manager at Pimco.
European stocks followed their Asian counterparts lower, meanwhile, with the composite Stoxx 600 shedding 0.2 per cent, London’s FTSE 100 0.6 per cent and Frankfurt’s Dax 0.1 per cent.
Asian equities were mostly sharply lower on the day. Hong Kong’s Hang Seng was down 1.5 per cent, with shares in railway operator MTR down 1.4 per cent after a train derailed in the city.
China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped 1.6 per cent after the People’s Bank of China left its one-year medium-term lending facility rate unchanged at 3.3 per cent. Analysts had been anticipating more signs of easing from the central bank.
The one bright spot was Japan’s Topix index, which added 0.4 per cent, having been closed on Monday for a holiday, with gains led by oil producers and related names.
S&P 500 futures were pointing to a slight dip of around 0.2 per cent when Wall Street begins trading later on Tuesday.