Geopolitics back in focus

There was a rude awakening for the oil market last weekend as a missile and drone attack on Saudi oil facilities, allegedly backed by Iran, removed around 50% of Saudi capacity. As the dust settled, oil prices ended the week about $5 or 7% higher. We think this represents a fairly muted market response. Admittedly, Saudi officials have pledged to restore output fully by the end of the month but, at the same time, the attack has shown that regional oil facilities are vulnerable. For now, we are retaining our forecast that the price of Brent will fall to $60 per barrel by end-2019 as the latest events will have only a minimal impact on supply. But, over the next week or so, the Saudi response will become clear and may require a higher risk premium to be factored into prices. Otherwise next week will be fairly quiet on the data front. The euro-zone flash PMI, scheduled for release on Monday, is likely to edge up but remain consistent with slow growth. Meanwhile, on Friday, US durable goods data for August are likely to further demonstrate the weakness of US investment.