Oil Falls As Saudi Arabia Projects Quick Recovery From Drone Attack

Oil prices soared Monday in reaction to a drone attack on Saudi Arabian oil facilities, but most of the gains were short-lived: WTI and Brent crude prices were each down more than 5% Tuesday.

What Happened

The price of oil surged the most on record Monday after a drone attack on Saudi Arabia's oil infrastructure crippled its resources.

Saudi Arabia said Tuesday it is close to bringing back online 70% of the 5.7 million barrels per day of oil impacted. The government also noted the damage is "minimal" due to its large oil storage.

Does Oil Need A Risk Premium? 

Satellite images of the Saudi oil facilities show "really extensive damage" involving highly customized equipment, Tamar Essner, Nasdaq Corporate Solutions energy and utilities director, said on CNBC's "Squawk on the Street" Tuesday.

This calls into question the country's ability to repair the damage at a fast pace, she said. 

Saudi Arabia's oil reserves is large enough to cover its requirements for around 30 days, Essner said.

If production doesn't return to prior levels in this time frame, the price of oil should gain $10 per barrel, she said. 

Prior to last weekend's drone attack, it was widely believed that Saudi Arabia's billions of dollars of investments in security would secure its infrastructure, Essner said. It is now clear the country can't defend itself against "unconventional weapons," she said, adding that this translates to $3 to $5 per barrel in risk premium going forward.

"We now have assets that are really exposed that the market wasn't appreciating until up to this weekend."

Ex-Shell President Looks To The Future 

The U.S. is flush with "plenty" of oil and gas with "more where that came from," ex-Shell Oil President John Hofmeister said on Fox Business Tuesday.

While this is clearly good news, the bad news is that the U.S. still imports 7 million barrels of oil a day, as the country has yet to shift to alternate fuel sources like making natural gas into a transportation fuel, he said. 

"We could be completely remote and isolated from any geopolitics of the oil price if we would simply develop the fuel alternative opportunity that we have." 

Continental Resources CEO Downplays Strategic Reserves

Harold Hamm, chairman and CEO of Continental Resources, told CNBC the U.S. doesn't need to rely on Middle Eastern oil as much today as it has in the past.

Anytime oil is taken out of the market anywhere in the world, it will have an impact everywhere in the world, he said. 

President Donald Trump deserves credit for doing "great things" with the energy sector, he said, adding that it is not necessary for the country to tap into its strategic oil reserves. 

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