Attack on Saudi facilities sends oil prices surging

Brent crude futures surged above $70 a barrel for the first time since the COVID-19 pandemic began, while U.S. crude touched its highest in more than two years, following reports of attacks on Saudi Arabian facilities.

Brent crude futures for May hit $71.38 a barrel in early Asian trade, the highest since Jan. 8, 2020, and were at $70.96 a barrel by 0611 GMT, up $1.60, or 2.3%.

U.S. West Texas Intermediate (WTI) crude for April rose $1.47, or 2.2%, to $67.56. The front-month WTI price touched $67.98 a barrel earlier, the highest since October 2018.

Asian stocks also rose after the U.S. Senate approved a $1.9 trillion stimulus bill while positive economic data from the United States and China bode well for a global economic rebound.

Yemen's Houthi forces fired drones and missiles at the heart of Saudi Arabia's oil industry on Sunday, including a Saudi Aramco facility at Ras Tanura vital to petroleum exports, in what Riyadh called a failed assault on global energy security.

"We could see further upside in the market in the near-term, particularly as the market probably now needs to be pricing in some sort of risk premium, with these attacks picking up in frequency," ING analysts said in a report, noting that this was the second attack this month following an incident in Jeddah on March 4.

RBC Capital's Helima Croft said the latest incident underscored just how dangerous the security environment remains in the region nearly 18 months after the September 14, 2019 Iranian strikes that temporarily took offline half of the kingdom's oil output.

Brent and WTI prices are up for the fourth consecutive session after OPEC and its allies decided to keep production cuts largely unchanged in April.

China's crude shipments in the first two months of 2021 are up 4.1% on year after the world's top importer expanded its refining capacity and as its fuel demand continued to grow.

Despite fast-rising crude prices, Saudi Arabia's oil minister has voiced doubts on demand recovery.

"The decision to keep quotas unchanged signals the group’s intent to drawdown inventories further, without concern of overtightening the market," ANZ analysts said in a note.

"It also suggests they see little threat from rising output elsewhere."

However, the energy minister in the world's third-largest crude importer, India, said higher prices could threaten the consumption led-recovery in some countries.

Higher prices have also encouraged U.S. energy firms to add oil and natural gas rigs for a second week in a row, energy services firm Baker Hughes Co said on Friday.

Yemen's Houthis attack Saudi oil heartland with drones, missiles

Yemen's Houthi forces fired drones and missiles at the heart of Saudi Arabia's oil industry on Sunday, including a Saudi Aramco facility at Ras Tanura vital to petroleum exports, in what Riyadh called a failed assault on global energy security.

Announcing the attacks, the Houthis, who have been battling a Saudi-led coalition for six years, also said they attacked military targets in the Saudi cities of Dammam, Asir and Jazan.

The Saudi energy ministry said an oil storage yard at Ras Tanura, the site of an oil refinery and the world's biggest offshore oil loading facility, was attacked with a drone coming from the sea. The defence ministry said the armed drone was intercepted and destroyed prior to reaching its target.

Shrapnel from a ballistic missile fell near a residential compound in Dhahran used by state-controlled Saudi Aramco, the world's biggest oil company, the ministry said, adding that neither attack resulted in casualties or loss of property.

The attacks drove Brent crude prices above $70 a barrel to their highest since January 2020, while U.S. crude futures touched their loftiest since October 2018.

"Such acts of sabotage do not only target the Kingdom of Saudi Arabia, but also the security and stability of energy supplies to the world, and therefore, the global economy," a ministry spokesman said in a statement on state media.

The Saudi-led coalition earlier said it intercepted 12 armed drones aimed at "civilian targets" without specifying a location as well as two ballistic missiles fired towards Jazan.

The sites attacked on Sunday lie on the Gulf coast in Eastern Province, home to most of Aramco's production and export facilities. In 2019, Saudi Arabia, the world's top oil exporter, was shaken by a big missile and drone attack on oil installations just a few km (miles) from the facilities hit on Sunday, which Riyadh blamed on Iran, a charge Tehran denies.

That attack forced Saudi Arabia to temporarily shut more than half of its crude output, causing a huge price spike.

ESCALATION

Houthi military spokesman Yahya Sarea said on Sunday that the group had fired 14 drones and eight ballistic missiles in a "wide operation in the heart of Saudi Arabia".

The Houthis recently stepped up cross-border attacks on Saudi Arabia at a time when the United States and the United Nations are pushing for a ceasefire to revive stalled political negotiations to end the war.

Last Thursday, the movement said it fired a missile at an Aramco petroleum products distribution plant in the Red Sea city of Jeddah which the Houthis had attacked in November 2020, hitting a storage tank. Aramco and Saudi authorities have not commented about Thursday's claim.

The military alliance intervened in Yemen in March 2015 after the Houthis ousted the Saudi-backed government from power in the capital, Sanaa. The conflict is widely seen in the region as a proxy war between Saudi Arabia and Iran.

Colonel Turki al-Malki, the spokesman of the Saudi defence ministry and of the Saudi-led military coalition, said in a statement that the ministry would take "all necessary, deterrent measures to safeguard its national assets".

Earlier, the coalition said it conducted air strikes on Houthi military targets in Sanaa and other Yemeni regions on Sunday and warned that "civilians and civilian objects in the Kingdom are a red line".

It said the Houthis had been emboldened after the new U.S. administration revoked a terrorist designations on the group in February that had been imposed by former President Donald Trump's administration and backed by Riyadh.

Last week, the U.S. Treasury Department imposed sanctions on two Houthi military leaders in the first punitive measures against the group by President Joe Biden's administration following the increase in attacks on Saudi cities and intensified battles in Yemen's Marib region. In Sanaa, a Reuters witness reported several air strikes. The Houthi-run Al Masirah TV said coalition warplanes bombed al-Nahda and Attan districts.

In February, Biden declared a halt to U.S. support for offensive operations by the coalition but said the United States would continue to help Saudi Arabia defend itself.

The war, which has been in a military stalemate for years, has killed tens of thousands of people and pushed Yemen to the brink of famine. The Houthis say they are fighting a corrupt system and foreign aggression.

(Reporting by Gulf team; Marwa Rashad in London and Nayera Abdallah and Ahmed Tolba in Cairo and Yemen team; Writing by Ghaida Ghantous; Editing by Louise Heavens, Frances Kerry, William Maclean)

(Reporting by Florence Tan; Editing by Kenneth Maxwell, Muralikumar Anantharaman, and Ana Nicolaci da Costa)

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