Could oil, the price or which has sunk 20% since June, be poised for a U-turn, and possibly climb back above $100 per barrel? Talk from Saudi Arabia about restricting production raised that possibility—and gave investors the willies on Tuesday.
Crude jumped up by almost 3.8% yesterday. The catalyst: OPEC Plus may have to slice its output, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman told Bloomberg, citing what he called “extreme” volatility and lack of liquidity in the futures market. His nation is the biggest producer in the 23-country alliance. The S&P 500 fell 0.2% in Tuesday trading, the index’s third straight day of losses.
Oil prices had been on the downswing lately. As recently as June, West Texas Intermediate was at $122 per barrel, but it fell below $100 in July, amid worries about the global economy and the potential of more Iranian oil coming into the market. WTI ducked as low as $86 last week, then began ascending again and touched just beneath $94 on Tuesday.
Saudi Arabia and the rest of the OPEC Plus group have steadily increased production this year, reversing all of the decreases made during the pandemic’s onset, as demand came back and Russian supply slid amid sanctions for its invasion of Ukraine.
But if the U.S. economy weakens, so too should demand for oil. According to the Saudi prince, the cartel will have no trouble quickly engineering output cuts to match it.
“The oil market will remain tight whether business activity continues to weaken sharply or if economic growth remains choppy,” wrote Edward Moya, senior market analyst for the Americas at OANDA, in a research note.
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Tags: energy, oil, OPEC-plus, Prince Abdulaziz bin Salman, Saudi Arabia, WTI