Oil plummets 6% after historic surge as Saudis signal output to be fully restored soon

[NEW YORK] Oil sank from a 3½-month high on Tuesday amid signs Saudi Arabia is restoring production after a debilitating weekend attack on key installations.

Brent crude futures, the international benchmark, dropped 6.5 per cent or US$4.52 to US$64.46 per barrel. The contract soared as much as 19.5 per cent on Monday to US$71.95 per barrel, the biggest jump in history after a series of drone attacks on Saudi's key oil facilities disrupted production.

US West Texas Intermediate futures ended the session 5.7 per cent or US$3.56 lower at US$59.34 per barrel after posting their biggest climb since 2008 in the previous session.

The Saudi energy minister said in a press conference on Tuesday that oil production capabilities were fully restored and that oil output will be back to pre-attack levels by the end of September. The Saudis pledged to lift output capacity to 11 million barrels a day by the end of this month and grow to 12 million in November, Energy Minister Prince Abdulaziz bin Salman said at the briefing. Customers will be getting their supplies, and the company will tap reserves if needed to fulfill commitments, he said.

The announcement followed conflicting media reports about the pace and probable duration of Saudi Aramco's efforts to repair the damaged Abqaiq facility. Despite the kingdom's reassurances at a media briefing in Jeddah, crude remained almost 7 per cent higher than the pre-attack price, a signal of the risk premium factored in by traders.

Oil futures swung wildly in London and New York for the past two days after the attack on the Abqaiq complex and an important oil field crippled Saudi production and prompted US Secretary of State Mike Pompeo to allege Iran was behind the incident.

Adding to the bearish sentiment, the industry-funded American Petroleum Institute reported a 592,000-barrel increase in stocks for the week ended September 13, in contrast with analyst expectations for a 2.25 million-barrel decline. If government data Wednesday confirms the stock increase, it would break a four-week streak of inventory declines. The API also reported an 846,000-barrel drop in stocks at Cushing, Oklahoma, and a combined 3.6 million barrel build in petrol and distillate inventories.

Meanwhile, US President Donald Trump said he saw no reason to allow refiners to dip into the nation's emergency reserves.

"I don't think we need to. Oil has not gone up very much," Mr Trump told reporters Tuesday aboard Air Force One. "There's a lot of oil in the world."

Saudi Aramco is firing up idle offshore oil fields - part of its cushion of spare capacity - to replace some lost production, a person familiar with the matter said. Some customers are being asked to accept different grades of crude. The kingdom's domestic inventories are sufficient to cover about 26 days of exports, according to consultant Rystad Energy A/S.

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