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Crude surges after attack on Saudi energy facilities, ICE Brent climbs above $70/b

New York — 0222 GMT: Crude oil futures continued their price surge during the mid-morning trade in Asia March 8, as a drone attack on a Saudi oil shipping port ignited fears over disruptions in global oil supply, and a confluence of bullish political and economic developments provided further tailwind to the market.

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At 10:22 am Singapore time (0222 GMT), the ICE Brent May contract was up by $1.89/b (2.72%) from the March 5 settle to $71.25/b, while the April NYMEX light sweet crude contract was up by $1.76/b (2.66%) to $67.85/b. The last time the front-month ICE Brent contract was seen trading above $70/b was on Jan. 8 2020, with the last settlement above $70/b on May 28, 2019, when it settled at $70.11/b.

The rapid rise in prices this morning came as Saudi Arabia's energy ministry reported a drone attack on March 7 morning that hit a petroleum storage tank at the Ras Tanura port.

The attack, launched by Iranian-backed Houthi rebels from Yemen galvanized fears over the security of the global oil supplies as the Ras Tanura port is one of the world's largest oil shipping ports, with 33 million barrels of storage capacity and three terminals that export all of Saudi Arabia's key crude oil grades, in addition to exporting condensates and refined products.

"Any disruption to the Middle East supply chain could shoot oil prices considerably higher. Indeed, this could be the flashpoint that ignites that smoldering Middle East powder keg as apparent lines in the sand got crossed when the attacks targeted civilians," warned Stephen Innes, chief global market strategist at Axi, in a March 8 note.

The ministry also reported a shrapnel from a ballistic missile falling on March 7 evening near a Saudi Aramco residential compound in Dhahran, where the state oil company Saudi Aramco is headquartered.

The attacks seen on March 7 are worrying as they demonstrate aggression towards Saudi energy facilities in particular, following a missile launch on March 4 by the Houthis rebels on Saudi Aramco facilities at the port city of Jeddah.

Innes noted that the price movements caused by the supply disruptions in the Middle East could be exaggerated by tight OPEC+ production quotas, and the inability of US shale producers to rapidly boost production.

Oil prices also received support from news that a $1.9 trillion stimulus package had cleared the US Senate, and was now awaiting final approval from the US House of Representatives. According to media reports, the House aims to pass the bill on March 10.

The US stimulus package is expected to further hasten the country's economic recovery, and boost oil and energy demand.

Positive economic data also lifted sentiment with US nonfarm payrolls defying analyst expectations and increasing by 379,000 in February, according to a March 5 report by the US labor department, and Chinese exports jumped by 60.6% on the year in the January-February period, according to official data released March 7.

"The robust US jobs data demonstrates once again that the economy is poised to accelerate as the risk from [the pandemic] recedes [and] China's robust export data points to strong global demand, suggesting the damage of mobility restrictions is starting to fade," said Innes.