India, the world’s third-largest oil consumer, will not be hit by a reduction in production at its No 2 supplier Saudi Arabia, the Oil Ministry said on Monday. “Yesterday (September 15), Saudi Aramco officials informed the Indian refiners that there would be no shortage of supplies to them. Ministry of Petroleum and Natural Gas is closely monitoring the situation in consultation with Indian refiners and Saudi Aramco,” it said in a statement.

A massive drone strike on the world’s largest crude-processing facility operated by Saudi Arabia’s Aramco has driven oil prices to their highest level in nearly four months. The attack has knocked out over half of Saudi Arabia’s production as it cut 5.7 million barrels per day or over 5 per cent of the world’s supply.

Read more: Houthi drone attack hit two Aramco plants, Saudis say fires contained

India imports 83 per cent of its oil needs. Saudi Arabia is its second-biggest supplier after Iraq. It sold 40.33 million tonnes of crude oil to India in 2018-19 fiscal, when the country had imported 207.3 million tonnes of oil.

Oil prices surged the most on record on Monday, with Brent crude rising by as much as 19.5 per cent to USD 71.95 per barrel - the biggest gain in dollar terms since futures started trading in 1988. US West Texas Intermediate (WTI) futures climbed 15.5 per cent to USD 63.34, the biggest intra-day percentage gain since June 1998.

Also read: Oil surges as Saudi attack focuses market on supply risks

Officials at state-owned oil refiners said Saudi Aramco has informed that there would not be any major disruption, but has sought flexibility for switching to different grades for continuing supplies.

Wood Mackenzie VP for Refining, Chemicals an Oil Markets, Alan Gelder said, “This attack has material implications for the oil market, as a loss of 5 million barrels per day of supplies from Saudi Arabia cannot be met for long by existing inventories and the limited spare capacity of the other OPEC+ group members. A geopolitical risk premium will return to the oil price.”

Commenting on the situation, Kotak Institutional Equities said the largest-ever disruption of crude production in Saudi Arabia may keep oil prices elevated in the near term. “Global oil supplies may be adequately met through large inventories and strategic reserves; however, moderation in oil prices will depend on full restoration of Saudi’s production, which may at least take a few weeks,” it said, adding that any further escalation of geopolitical tensions in the Middle East region may add to the woes.

Spike in crude prices, even if temporary, will be negative for Indian oil marketing companies and positive for upstream PSUs and GAIL, it said. “Any further escalation of geopolitical tensions in the Middle East region, which cannot be ruled out for now, may add to the woes of global oil supplies for now given lack of buffer from Saudi’s significant spare production capacity,” Kotak said.

Crude supplies from Iran and Venezuela have already been curtailed significantly amid sanctions from the US, it added.