Global energy prices spiked Monday by 15% after a weekend attack on key oil facilities in Saudi Arabia caused the worst disruption to world supplies on record.
It was an increase on par with the 1991 Gulf War and analysts said heightened tensions in the Middle East could keep prices elevated for the foreseeable future. The wider economic fallout will depend on just how long the Saudi supply disruption lasts.
The attack on the country's largest oil processing plant disrupted more than half of its daily exports, halting 5% of world crude oil output.
But the oil price spike pushed up the averqage price of regular gas in Cleveland, Tennesssee — the cheapest city in American to refuel on Sunday — by 21 cents a gallon on Monday, according to stations surveyed by the online pricing service GasBuddy.com
Cleveland boasted the lowest average price for gas of any metro area in America on Sunday with a handful of stations selling regular gas below $2 a gallon the the citywide average priced at only $2.07 a gallon. But the average jumped Monday to $2.28 a gallon, GasBuddy.com said.
In Chattanooga and most other markets, gas prices eased up only slightly on Monday, although experts said fuel prices could rise through the week.
According to GasBuddy price reports, the cheapest station in Chattanooga was priced Sunday at $2.02 a gallon while the most expensive was $2.59 a gallon. Gas prices in Chattanooga on Sunday averaged $2.12 a gallon — down 8.2 cents per gallon from a month ago and 35.4 cents per gallon below the prices of a year ago.
"While there is some good news that motorists should not expect a sudden and major uptick in gas prices, there may be a minor impact beginning mid-week and continuing until Saudi Arabia's state-owned oil company, Aramco, is able to restore all production," said Patrick DeHaan, an analyst for GasBuddy.com. "Even after oil production levels return to normal, there is an undeniable factor that will now forever impact oil prices — and that is that Saudi Arabia's reliability and stability is no longer guaranteed, and this missile strike is evidence that perhaps one of the world's most stable oil producers may no longer be seen as stable as they were prior to this event,"
The weekend attack on Saudi oil facilities followed a string of other attacks in the Persian Gulf, which threatened global oil supplies and stirred tensions in the region. But the scope of the most recent incident was more severe. That's especially worrying for oil-thirsty Asia, where China, Japan, South Korea and India are major customers of Saudi oil.
"What got hit is really important and serious, and this is not going to be a 'We're fixing it in two days' kind of thing," said Amy Myers Jaffe, senior fellow at the Council for Foreign Relations. "It's the difference between my stabbing you in the leg or the shoulder, versus stabbing you in the neck."
Oil prices spiked 15% at various points on Monday after the disruption to a market that was already constrained due to supply disruptions in Venezuela and elsewhere. Crude was up more than $8 per barrel by midday trading, to about $63, and Brent picked up more than $9 per barrel, to $69.
While oil production in the U.S. is booming and its reliance on imports is waning, the U.S. still needs oil from Saudi Arabia.
The U.S. produced a record-high 375 million barrels per month in May, while its imports of Persian Gulf oil fell from 96.7 million barrels per month in 2001 to 28.4 million barrels in April 2019, according to the U.S. Energy Information Administration.
All the extra U.S. oil is boosting the world's oil supply and helping to soften the impact of lost production in Venezuela and Iran, which are unable to supply the U.S. due to sanctions, and Libya, where political unrest has cut production. But the added U.S. oil is not enough to replace what could potentially be lost if there are further disruptions in the Middle East, and it also is not the type of crude oil everyone wants.
Most of the new oil produced in the U.S. is light and sweet, which is low in sulfur. But many oil refineries along the U.S. Gulf Coast are designed to process heavy crude oil. In some cases, it's cheaper for U.S. oil producers to ship light, sweet crude to Europe than to ship it to U.S. refineries in the Northeast.
The U.S. still imports a hefty amount of oil, and in 2018 it brought in 2.34 million barrels of oil per day, representing 11% of the petroleum consumed in the country.
"One of the biggest factors playing into our current economic outlook is uncertainty," said Beth Ann Bovino, U.S. chief economist at S&P Global Ratings. "Higher oil prices may be just one more nail in the coffin for this U.S. expansion."
When a major disruption to oil supply happens, countries can act together — coordinating through the International Energy Agency — or alone when considering releasing oil from their strategic reserves.
There have been three times that countries acted together to release oil from their reserves, including during the lead-up to the Gulf War in 1991, after oil infrastructure was damaged by Hurricanes Katrina and Rita in 2005 and after a prolonged disruption of Libyan oil supply in 2011.
"Countries are looking to see how long the repairs are going to take and how big the disruption is going to be in terms of what can be restored and can't be restored quickly," Jaffe said.