TORONTO - A drone attack on a massive oil refinery in Saudi Arabia could have an effect at the pumps overnight, when gas prices across Canada are expected to rise.
More than five per cent of the global oil production capacity was taken offline following the attack on the Saudi Aramco facility on Saturday, seeing oil prices soar on global markets.
“We could see prices overnight in the GTA area up four cents, but they’re saying over the next couple of weeks right across the country, you could see prices going anywhere from five cents to 12 cents a litre higher,” Pattie Lovett-Reid, CTV News’ chief financial commentator told CTV News Channel.
“The question is back to supply, the uncertainty, the timing. I don’t think it’s going to go away anytime soon. Get prepared, there’s going to be pain at the pump.”
The Houthi, a rebel group based in Yemen and backed by Iran, has claimed responsibility for the attack.
Saudi Arabia has been fighting a war in Yemen since it invaded in 2015.
The U.S. claims Iran played a direct role in Saturday’s strike, which Iran has denied.
The attack resulted in a temporary cut to Saudi Arabia's oil production output of an estimated 5.7 million barrels – or about half of its total capacity.
“I think the temporary spike in (oil) prices that we’re seeing is fear and I think this is going to settle down pretty quickly if there is no further attack,” University of Toronto professor Janet Stein told CTV’s Your Morning.
“There’s large stockpiles of oil, the global economy is slowing. Yes this is a big hit to Saudi Arabia, but it’s on the refining end, not on the production end. There is refining capacity in the world to compensate for this.
“The big question in global markets, fear. This refinery has been a long standing concern for everybody. Is this the beginning or is this a one off and is everybody going to pull back?”
The attack occurred one day before Canadian retailers' yearly Sept. 15 switch to the winter blend of gasoline, which is cheaper to produce and typically sells for about four cents per litre less than the summer blend.
With prices set to fall because of the switch to the winter blend, any increase caused by the attack in Saudi Arabia and resulting escalation in crude oil places could be offset.
But Saudi Aramco’s production capacity could be off-line for months following Saturday’s attack, Lovett-Reid said, which could be a boon for Canada, which holds the world’s third-largest crude reserves.
“Saudi oil is light and requires a different kind of refining capacity, our oil is heavy, so there’s no one-to-one exchange here,” Stein explained.
“But should oil markets tighten, then that certainly improves the prospect for Canadian oil. But we are having trouble getting our oil out of the ground and to the markets and this doesn’t change that.”
Nearly all of the kingdom’s oil shipments to Canada travel to a single refinery in New Brunswick, Irving Oil’s Saint John plant, which can process about 299,000 barrels a day. The refinery relied on Saudi crude for more than 40 per cent of its supplies in July, Statistics Canada data show.
The bulk of Canada’s reserves are located in the oil-sands region of northern Alberta. Most of that oil is exported to the U.S. and while some can be shipped to eastern Canada on Enbridge Inc.’s Line 9, the pipeline only serves refineries as far east as Montreal.
Brent futures jumped almost US$12 in the seconds after the open on Monday, the most in dollar terms since their launch in 1988 and traded as high as US$71.95 a barrel during the session.
The sudden rise in oil prices hurts refiners such as Irving, raising the cost of their primary input for making fuel.
Irving ships more than half of the fuels it produces, including gasoline, diesel, heating oil and jet fuel, to the northeast U.S.
Oil was holding at above US$62 a barrel on Tuesday morning.
--- With files from Ryan Flanagan, The Associated Press and Bloomberg News
