There are all sorts of analysis out there, and you could pick one that suits you – ranging from oil reaching $100/bbl in no time, to this just being a stutter before oil stabilizes around $70/bbl. Recall that it was just last week when the US EIA had lowered the global oil demand forecast growth to under a million barrels per day (read: Bearish sentiments rule oil, published September 12, 2019). But what happened with the Saudi oilfield last week that is as close to unprecedented, as it gets, at least since 1991.

There are many ways to read the situation. The most obvious one is to expect a premium attached to the event, which could range anywhere from $3-$6 per barrel. The additional risk premium is justified given the scale of tensions and the potential disruptions it could cause, in case of reemergence or further escalation of the situation.

Now on to the more uncertain part, and that is Saudi’s ability to bring the outback back. Should it take weeks, the movement could well be restricted to only the additional premium and nothing beyond that, as the global oil demand dynamics have not altered as a result of the attack. But if it is a matter of months and not weeks, before Saudi Arabia restores normal supply levels, there are talks of oil settling north of $75/bbl. In the worst case scenario of a longer delay in supply restoration, and a full blown war like situation, which could also involve Iran, all bets are off. In such a case, the levels last seen in 2008 ($147/bbl) cannot entirely be ruled out.

Till then, it is guess work at best. Meanwhile, Opec and Russia, have stated that there is no need to push the panic button yet, pointing at more than ample global commercial oil stocks, at the disposal of the two leading producers, the USA and Saudi Arabia. Should the stocks see drawing, the supply situation could be back to normal swifter than what it looks today. Although, the drawing from reserve stock normally carries a premium, but global stockpile today, is at a multi-decade high – and could only be seen as a step to bring the market close to equilibrium. Also, US shale players are never too far off, to sense the opportunity and pump in more, should the bull rally go any deeper.

Be that as it may, this could well cause headache in Islamabad, where the only achievement of sorts in the last year or so, has been the reduction in current account deficit. Should oil average 10 percent higher for FY20, assuming no change in volume, the energy import bill could be an additional $1.5 billion. Pakistan would gladly take that, but if oil price goes any higher, that could spell trouble. This could also alter all inflation projections, given the impact it would have on electricity, gas, and motor fuel prices. The oil and gas listed companies though, can expect fair value upgrades!