Crude oil prices saw a kneejerk reaction after an attack on Saudi Arabia's oil facilities cut over 5 percent of the global oil supply. The disruption in Saudi Arabia's global oil supply could impact countries which are major importers of Saudi crude, such as India, China and Indonesia.

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International benchmark Brent crude futures rose by as much as 19.5 percent to $71.95 per barrel, the biggest intraday jump since January 14, 1991. By 12.03 PM, the front-month contract was at $66.31, up $6.09, or 10.1 percent, from its previous close.

Saudi Arabia is the world's biggest oil exporter and the attack on state-owned producer Saudi Aramco's crude processing facilities at Abqaiq and Khurais has cut output by 5.7 million barrels per day. The company has not given a timeline for the resumption of full output.

India's oil imports

The news raises a lot of concerns into the market especially for India, which is the third-largest oil consumer in the world and Saudi Arabia is the second-largest supplier of crude oil and cooking gas to India. The nation's 85 percent of imported oil comes from the Opec countries, which has come down lately due to the crisis in Iran and Venezuela.

READ ALSO: Saudi Aramco attacks to have temporary impact, as of now, says RBI Governor

India's oil imports fell 8.90 percent to $10.88 billion in August from $11.94 billion in a year-ago period, bringing down the trade deficit in August to $13.45 billion from $17.92 billion a year ago. India's oil import bill was $111 billion last year.

According to CARE Rating, at the macro level with imports of 1,643 million barrels of crude oil in FY20, a dollar increase in prices on a permanent basis would increase the bill by roughly $1.6 billion per annum.

Saudi Arabia has assured India that there would be no loss of supply as it will deliver crude from other sources and had adequate inventory, reported Reuters.

Petrol, diesel prices

Prices of petrol and diesel change every fortnight based on the changes in the price of crude oil and changes in the tax rate. India had been facing relief in fuel prices due to the global fall in fuel prices.

"We can maybe foresee an increase in petrol and diesel in the coming few days, depending on how the oil markets react in the reduction in supply," said CARE Rating.

Mriganka Jaipuriyar, S&P Global Platts, said the oil supply is the immediate concern for India as India has diversified supplies. The main concern is rising oil prices. "With India, and the rest of the world is facing growth concerns, rising crude prices is a negative," said Jaipuriyar. S&P Global Platts expects the oil prices to touch a high $70 per barrel or even $80 a barrel.

But it really is the volatility that you are looking at into the oil prices which rose to nearly 20 percent in the opening, only to trade around nine to 10 percent higher later. Similar movement was seen on the MCX as well, oil prices saw a jump of 9 percent of gains on the opening trade.

A key concern is how long the outages will grow. Given the fact that markets are talking about dipping into their strategic reserves that means lesser capacity and lesser inventories.

Another thing to watch out is how the Yemen war is treated now. Are we looking at more tensions going forward? Are there going to be more retaliatory actions coming in that could keep the crude prices higher as well?

First Published:Sept 16, 2019 1:33 PM IST