Oil markets are grappling with uncertainty over how long it will take Saudi Arabia to restore output after the devastating attacks that knocked out 5% of global crude supply.
As state oil producer Saudi Aramco grows less optimistic that there will be a rapid recovery after the strikes that cut the nation's output by half, investors are looking for clarity on just how bad it could be. Initially, it was said significant volumes could begin to flow again within days but Saudi officials later told a foreign diplomat they face a "severe" disruption measured in weeks and months.
"There's been a real shift in understanding how quickly that lost production is going to come back online," Ann Berry, a partner at Cornell Capital LLC, said in an interview on Bloomberg TV. "The original reaction was that 100% would come back very quickly, now the outlook is going to be a lot more conservative than that."
The worst ever sudden disruption to global oil supplies continues to reverberate as geopolitical risk premiums jump on concern over instability in the Middle East and a potential retaliation against Iran, which the U.S. has blamed for the strikes. Traders may not have fully priced in the impact of the supply losses, according to Citigroup Inc.
While Aramco is still assessing the state of the Abqaiq plant and the scope of repairs, it currently believes less than half of the plant's capacity can be restored quickly, said people familiar with the matter, who asked not to be identified because the information isn't public.
Saudi Aramco is firing up idle offshore oil fields - part of its cushion of spare capacity - to replace some of the lost production, one person said. Aramco customers are also being supplied using stockpiles, though some buyers are being asked to accept different grades of crude oil. The kingdom has enough domestic inventories to cover about 26 days of exports, according to consultant Rystad Energy A/S.
The market was relatively calm on Tuesday after the previous day's fireworks, when Brent surged by almost $12 a barrel, before settling just above $69 for the biggest one-day percentage gain since the contract began trading in 1988.