Oil prices surged on Monday after drone attacks on crude facilities in Saudi Arabia.

Brent futures, the international benchmark, jumped by nearly 20% to US$71.95 a barrel, while West Texas Intermediate increased by 15% to $63.34 before falling back in trading.

Both indices pared record gains after US President Donald Trump revealed that he had approved the release of oil from the United States Strategic Petroleum Reserve if needed. But crude was still nearly 10% up.

“Tensions in the Middle East are rising quickly, meaning this story will continue to reverberate this week even after the knee-jerk panic in oil markets this morning,” Jeffrey Halley, a senior market analyst at OANDA, the multinational forex group, said.

The attacks on plants in the heartland of Saudi’s oil industry caused major damage to the world’s biggest petroleum-processing operation and effectively shut down 6% of the global oil supply.

Mike Pompeo, the United States Secretary of State, made it clear that Iran was behind the attacks. His comments came after Tehran-backed Huthi rebels in neighboring Yemen, where a Saudi-led coalition has been bogged down in a five-year war, claimed responsibility.

“The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression,” he said.

Culprit

Later, Trump pointed out that the White House knew who the culprit was and was “locked and loaded.”

“There is reason to believe that we know the culprit, are locked and loaded depending on verification but are waiting to hear from the Kingdom [Saudi Arabia] as to who they believe was the cause of this attack, and under what terms we would proceed,” he tweeted.

Iran has denied the accusations but the news revived fears of a conflict in the tinderbox Middle East after a series of attacks on oil tankers earlier this year that were also blamed on Iran.

“One thing we can say with confidence is that if part of the reason for last week’s fall in oil and improvement in geopolitical risk sentiment was the news of John Bolton’s sacking … and thoughts this was a precursor to some form of rapprochement between Trump and Iran, then it is no longer valid,” Ray Attrill, of the National Australia Bank, said.

Tensions

Oil prices had dropped last week after news that Trump had fired his anti-Iran hawkish national security adviser Bolton, which was seen as paving the way for an easing of tensions in the region. But that is now looking like a pipe-dream.

Still, strategists at Commonwealth Bank of Australia reported that the rise in crude prices may be shortlived.

“The drone attacks have hit the oil market at a time when there is a global oil glut and global growth is weak,” they wrote in a note. “Consequently, the impact on oil prices and global growth is not expected to be significant or last long.”

During the weekend, the International Energy Agency stressed that global markets would not be disrupted by the Saudi attacks.

“We are massively oversupplied,” Christyan Malek, the head of oil and gas research for Europe, Middle East and Africa at JP Morgan, said, adding it would take five months of a 5 million-bpd [barrels per day] outage to take global crude supply levels back to a 40-year normal average.

“Having said that, this attack introduces a new, irreversible risk premium into the market,” he added.

– additional reporting AFP