Prices initially surged as much as 18% but retreated after US President Donald Trump said on Sunday night that he had authorized the use of oil from the country's emergency oil supply. Trump said oil from the Strategic Petroleum Reserve, or SPR, would be used "to keep the markets well-supplied." The US reserve is the largest backup pool of oil.
State-owned Saudi Aramco oil facilities were badly damaged in the strikes and restoring production to their pre-attack levels "will take weeks, not days," according to two Saudi sources familiar with the kingdom's oil operations. "This is unprecedented in scale, and impact," they said.
US oil futures were trading at more than $60 a barrel — a spike of 12% — in New York on Monday morning. Futures of Brent crude, the global benchmark, traded at more than $66 per barrel, up 12%.
Gasoline futures, meanwhile, were up more than 11%.
"This is a big deal," said Tom Kloza, chief oil analyst for the Oil Price Information Service, which monitors the price of oil across the United States. "It is the biggest shock to the oil markets since [Hurricane] Katrina. And like Katrina it will likely haunt us for months, at least weeks."
Kloza said gasoline prices will likely "creep up" this fall, rather than drop steadily, as they historically have done.
Markets around the world on alert
Stock markets around the world reacted to the news.
US stocks traded lower. The Dow fell 160 points, or 0.6%, putting the index on track to snap an eight-day winning streak that has been its longest since May 2018. The S&P 500 and Nasdaq fell about 0.4%
Despite the overall move, energy stocks are rallying on the oil price jump. Oil and gas producer Chesapeake Energy jumped some 15% at the open. Energy was the only positive sector in the S&P 500. Marathon Oil, Halliburton and Devon Energy were the top gainers a few minutes into trading.
In the Dow, shares of Chevron and Exxon Mobil are top performers.
Similarly in Europe, markets are also in the red, while energy stocks, including BP and Royal Dutch Shell, were the best performers in London's FTSE 100.
Asian markets finished mostly lower, with Hong Kong's Hang Seng closing down 0.8%. CNOOC, China's biggest offshore oil producer, spiked 8.7% in Hong Kong, making it the best performer on the Hang Seng. PetroChina, another Hang Seng component and Asia's largest oil and gas producer, rose 7.4%.
Airlines stocks were hit hard in the face of a looming surge in fuel prices. Germany's Lufthansa was down 3.5%, while Air France KLM dropped 4.7%.
American Airlines, United, Delta and Southwest are all trading lower in the United States.
In Asia, China's three biggest airline operators all dropped sharply in Hong Kong. China Eastern Airlines fell more than 4%, while China Southern Airlines and Air China each fell at least 2.5%.
Cathay Pacific, the flagship airline of Hong Kong, fell 3.9%. The airline already has been struggling with fallout from months of pro-democracy protests in the city.
Amid the dramatic market moves, investors are also awaiting the Federal Reserve's interest rate decision on Wednesday. A quarter percentage point cut is expected at the meeting, according to the CME FedWatch tool, which ascribes a 73% chance. This is down from 77% earlier Monday.
Oil prices had been in a slump. Brent closed at $60.22 per barrel on Friday, down from a high of $74.57 in April. The price closely followed in the United States, known as WTI, closed at $54.85, a 17% drop from April's highs.
Saudi Arabia, the world's largest oil exporter, had cut back on production of crude and other energy products as part of an OPEC effort to boost prices. The kingdom produces approximately 10% of the total global supply of 100 million barrels per day.
Saturday's coordinated drone strikes on key Saudi Arabian oil facilities disrupted about half of the kingdom's oil capacity, or 5% of the daily global oil supply. The location is the world's largest oil processing plant. Saudi Energy Minister Prince Abdulaziz bin Salman said that 5.7 million barrels a day of crude oil and gas production have been affected.
The longterm impact of the shock to oil markets will depend on how long it takes Saudi Aramco to get fully back online.
"A small $2-$3 per barrel premium would emerge if the damage appears to be an issue that can be resolved quickly, and $10 if the damage to Aramco's facilities is significant," Ayham Kamel of the Eurasia Group said in a research note.
The fallout for stocks also depends on how long it takes Saudi Arabia to resume output, said Oscar Yee, an analyst for Citi Research in Hong Kong, in a report on Monday.
Kerry Craig, global market strategist at JPMorgan Asset Management based in Australia, said the ability of oil producers to dip into stockpiles may mitigate some of the rise in prices in the near term.
But he said in a note that the "bigger issue is what premium markets will build in to reflect the risk of further attacks."
The United States' strategic reserve
Meanwhile, the Trump administration is trying to mitigate any damage from the price shock. The country's oil stash, the SPR, contains 645 million barrels. It was established by Congress after the oil shocks following the OPEC oil embargo in the 1970s. It has been drawn on only three times, most recently in June 2011 when civil unrest in Libya unsettled global oil exports. The US government, worried that supply disruptions would threaten a fragile global economy still recovering from the Great Recession, ordered the sale of 30 million barrels.
It was also deployed in 2005 after Hurricane Katrina devastated the nation's oil infrastructure along the Gulf of Mexico. Its first use was in 1991 when the United States attacked Iraq in Operation Desert Storm.
The reserve is a complex of four sites along the Texas and Louisiana gulf coasts that have deep underground storage caverns, 2,000 to 4,000 feet below the surface. Any oil drawn from the SPR would not give an immediate boost to global supply. It has to be pulled out of storage and then sold into the marketplace of buyers and sellers, a process that could take about two weeks.
Advice from AAA
"AAA is anticipating that motorists could see prices as much a quarter, 25 cents, increase throughout the rest of this month," said AAA Mid-Atlantic spokesperson Jana Tidwell.
"As soon as crude oil prices increase as they have from last Friday, and since the attack we most always see gas prices follow suit quickly," she added.
Tidwell suggests that for now, you conserve trips and lighten the load inside your vehicle.
"You definitely want to clean out your car, as they say, get the junk out of your truck," she said.