A rally that pushed oil prices higher than before the pandemic faltered over uncertainty surrounding OPEC + and a stronger dollar.
The purchase of hedge fund oil reflected the changing fortune of oil, which changed from net buyers to net sellers in the six most popular oil and fuel contracts, Reuters’ John Kemp reported in its latest weekly column. That put an end to 15 consecutive weeks of buying, Kemp noted.
Apart from the obvious factors affecting oil prices, such as the forthcoming OPEC + meeting which could lead to an agreement to increase production, which will dampen prices, there was one new factor: the possibility of United States and Saudi to deteriorate.
The Biden government last week released a report involving the Saudi government in the assassination of journalist Jamal Khashoggi, which would be enough to sour bilateral relations, especially after the federal government announced sanctions against a former Saudi intelligence official who said he would be involved in the assassination and the Kingdom’s rapid intervention force.
“Those involved in the horrific assassination of Jamal Khashoggi must be held accountable. With this action, the Treasury is sanctioning Saudi Arabia’s rapid intervention force and a senior Saudi official who was directly involved in the assassination of Jamal Khashoggi,” the Finance Minister Janet Yellen said.
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But there could be more sanctions, and it could be directed at none other than Saudi Arabia’s de facto ruler, Crown Prince Mohammed, according to a Reuters report. The report quotes a UN human rights investigator who said it was “extremely dangerous” on Washington’s part to name Mohammed as involved in the assassination, but without punishing him.
This is where the danger to oil prices really lies. If the federal US government decides to leave this ‘extremely dangerous’ situation and punish the Saudi crown prince, the kingdom’s knee-jerk reaction would be to threaten the US with the flooding oil markets. Although we are in the world of speculation, Saudi Arabia may want to resist the knee-jerk reaction, but because there is little else he can do if US sanctions reach its highest levels of government, it will probably use the oil weapon.
Of course, this may be precisely why Washington has not yet approved Prince Mohammed and is not allowed to punish him at all. Despite President Biden’s green energy agenda, the oil and gas industry is making a major contribution to GDP and an equally important employer: more oil and gas bankruptcies will hardly be news to Washington.
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Out of the world of speculation and in fact, OPEC + is meeting later this week to discuss production. Total production of the expanded cartel declined last month due to the deeper Saudi cuts, but it is now over, so production will have to start climbing this month. The question is how high it would climb: the AFP reported earlier today that tensions in OPEC + are high and could possibly flare up during the meeting.
“The priorities are well known: Russia wants to return to normal production as soon as possible while Saudi Arabia wants to take advantage of high prices for a little longer,” AFP chief analyst Bjarne Schieldrop told Seb.
While the oil world awaits the Thursday meeting and its outcome, Congress passes through President Biden’s $ 1.9 billion stimulus program and sends it to the Senate. Although the final approval has not yet been approved, the US dollar has strengthened the US dollar, which usually has a negative effect on oil prices. Fears are also mounting that growth in fuel demand in China is slowing. On the headwind, we have a growing chorus of economist voices expecting the US economy to bounce back rapidly, which will increase demand for oil, to counteract all the factors that have oil under pressure.
By Irina Slave for Oilprice.com
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