LONDON/SINGAPORE - Oil prices surged nearly 20 percent at one point on Monday, with Brent crude posting its biggest intraday gain since the 1990-1991 Gulf crisis, after an attack on Saudi Arabian oil facilities at the weekend halved the kingdom's production.
Prices retreated after US President Donald Trump approved the use of his country's emergency oil stockpile to ensure stable supply. But he also said he was ready to respond to the strike, a prospect that maintained geopolitical tensions.
Brent crude futures, the international benchmark, rose as much as 19.5 percent to $71.95 per barrel, the biggest intraday jump since Jan. 14, 1991. By 1236 GMT, the contract was at $66.67, up $6.45, or 10.7 percent.
US West Texas Intermediate (WTI) futures climbed as much as 15.5 percent to $63.34, the biggest intraday percentage gain since June 22, 1998. The contract was later at $60.29, up $5.44 or 9.9 percent.
Saudi Arabia is the world's biggest oil exporter and, with its comparatively large spare capacity, has been the supplier of last resort for decades.
The attack on state-owned producer Saudi Aramco's crude-processing facilities at Abqaiq and Khurais cut output by 5.7 million barrels per day. The company has not given a timeline for the resumption of full output.
Two sources briefed on Aramco's operations said a full return to normal production "may take months".
"If these outages are lengthy, Saudi Aramco will struggle to hit export specification for its Arab Light and Arab Extra Light streams, and may even be forced to declare force majeure on some of these exports," consultancy Energy Aspects said in a note.
"We expect the IEA and US DOE to also release strategic stocks to fill the gap if the Saudi outage is prolonged," it said, referring to the International Energy Agency and the US Department of Energy.
Trump approved the release of oil from the US Strategic Petroleum Reserve but added the United States was "locked and loaded" for a potential response to the attack.
The threat of retaliation and an escalation of tensions in the Middle East, however, have kept prices high, irrespective of any relief from global stockpiles.
"This justifies a risk premium on the oil price, so prices are initially unlikely to return to the levels at which they were trading before the attacks," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt, Germany.
A US official said the attack on plants in the heartland of Saudi Arabia's oil industry, including the world's biggest petroleum-processing facility at Abqaiq, came from the direction of Iran, and cruise missiles may have been used.
Russia and China urged against hasty conclusions over the attacks.
ASIA EXPOSED, PRODUCTS IN DEMAND
Saudi oil exports will continue as normal this week as the kingdom taps into stocks from its large storage facilities, an industry source briefed on the developments told Reuters.
"One of the very few countries with spare oil capacity is Saudi Arabia ... It was exactly this extra supply cushion that has been wiped out over the weekend albeit possibly only for a limited period of time," Tamas Varga of oil brokerage PVM said.
Major importers of Saudi crude, such as India, China, Japan and South Korea, will be the most vulnerable to any supply disruption.
"India could be most exposed as its reserves are the least. China has a Strategic Petroleum Reserve and commercial crude storage, while Korea and Japan have IEA reserves to fall back on," Wood Mackenzie research director Vima Jayabalan said.
South Korea has already said it would consider releasing oil from its strategic reserves.
Saudi Arabia is set to become a significant buyer of refined products after the attacks, which may have also cut Saudi Aramco's refining capacity, consultancy Energy Aspects said.
Aramco Trading Co is making inquiries to buy diesel for prompt delivery, trade sources said.
US gasoline futures rose as much as 12.9 percent, while US heating oil futures gained 10.8 percent.
(Reporting by Koustav Samanta in Singapore and Sabina Zawadzki and Dmitry Zhdannikov in London; Editing by Dale Hudson and Louise Heavens)