Drone attacks on Saudi Arabia's two major oil refineries on Saturday, September 14, 2019 have driven up Brent crude oil price in the futures market by almost 12 percent. The incident has sparked fears among investors worldwide over oil supply disruption because Saudi Arabia is the world's largest oil producing country and the damage to its refineries have trimmed its oil production capacity by 5.7 million barrels/day or 58.2 percent of its total crude oil production capacity and 5.7 percent of the world's total crude oil production capacity. KResearch's assessment on such an impact on the Thai economy is based on two scenarios, as follows:
If Saudi Arabia does not launch any retaliation against the culprit, global crude oil prices will likely spike over the short term. Under this scenario, we at KResearch expect that global crude oil prices may gradually decline towards the level before the Saudi Arabia's oil refinery attacks and this may affect headline inflation from September to October, 2019. As a result, headline inflation during 4Q19 may increase 0.05 percent over our current projection, bringing the average headline inflation rate for 2019 to 0.84 percent.
If Saudi Arabia launches severe retaliations against the attacker, global crude oil prices will likely stay at high levels until the end of 2019. The steepened instability and a likelihood that global crude oil supply will decline may cause Brent crude oil price to move within a range of USD70-80/barrel during the final three to four months of 2019 and this may affect the Thai economy in many ways. KResearch has assessed that if the global crude oil prices climb to USD70-80/barrel during 4Q19, diesel fuel price in Thailand may lean towards USD30/liter. As a result, the average headline inflation rate projected for 4Q19 may double from 0.72 percent to 1.48 percent, bringing 2019 headline inflation to 1.08 percent or up 0.3 percent
In addition, high Brent crude oil prices during 4Q19 may trim Thailand's trade surplus by approximately USD1,231 million. The narrower trade surplus will likely shave Thailand's 2019 GDP growth by 0.2-0.3 percent, though this will depend on the government energy price policy. However, the lower trade surplus may ease pressure on the Baht that has strengthened steadily on Thailand's high trade surplus.
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