A rally that pushed up oil prices from what they were immediately before the pandemic occurred has faltered due to uncertainty surrounding OPEC + and a stronger dollar.
The purchase of hedge fund oil reflected the changing fortunes of oil, which went from net buyers to net sellers in the six most popular oil and fuel contracts, John Kemp told Reuters in his latest weekly column. That put an end to 15 consecutive weeks of buying, Kemp noted.
In addition to the obvious factors affecting oil prices, such as the upcoming OPEC + meeting that could lead to an agreement to increase production, which would dampen prices, there was a new factor: the potential to worsen relations. between the United States and Saudi Arabia.
The Biden administration last week released a report implicating the Saudi government in the assassination of journalist Jamal Khashoggi, which would be enough to aggravate bilateral relations, especially after the federal administration announced sanctions on a former government official. Saudi intelligence that was involved in the assassination and the Kingdom’s Rapid Intervention Force.
“Those responsible for the abominable assassination of Jamal Khashoggi must be held accountable. With this action, Treasury is sanctioning the Saudi Rapid Intervention Force and a senior Saudi official who was directly involved in the assassination of Jamal Khashoggi,” said Treasury Secretary Janet Yellen.
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But more sanctions are likely to come, which could be directed at anyone other than the de facto ruler of Saudi Arabia, Crown Prince Mohammed, according to a Reuters report. The report cited a UN human rights researcher who said it was “extremely dangerous” for Washington to name Mohammed as involved in the assassination, but without sanctioning him.
This is where the danger of the price of oil lies. If the U.S. federal government decides to get out of this “extremely dangerous” situation and punish the Saudi Crown Prince, the Kingdom’s reaction would be to threaten the United States with flooding oil markets. While we are in the world of speculation, Saudi Arabia may want to resist the backlash, but since there is little more it could do if U.S. sanctions reached higher levels of government, it will likely use the ‘oil weapon.
Of course, it may be precisely why Washington has not yet sanctioned Prince Muhammad and perhaps does not sanction him at all. Despite President Biden’s green energy agenda, the oil and gas industry is a major contributor to GDP and an equally important entrepreneur: more oil and gas failures will hardly be good news for Washington.
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Outside the world of speculation and reality, OPEC + meets later this week to discuss production. Total production of the expanded poster fell last month thanks to deep Saudi cuts, but these are already over, so production should start to rise this month. The question is how far it would go: AFP reported today that internal tensions are rising at OPEC + and could increase at the meeting.
“The priorities are well known: Russia wants to return to normal production as soon as possible, while Saudi Arabia wants to benefit from high prices a little more,” AFP was quoted as saying by Bjarne Schieldrop, chief analyst. of commodity research firm Seb.
While the oil world awaits Thursday’s meeting and its outcome, Congress approved President Biden’s $ 1.9 trillion stimulus program and sends it to the Senate. Although it has not yet received final approval, congressional approval strengthened the U.S. dollar, which often negatively affects oil prices. There are also growing fears that growth in fuel demand in China will slow. Still, on the tailwind side, we have a growing chorus of economist voices expecting a rapid rebound in the U.S. economy, which would increase oil demand, to apply back pressure to all factors pressing the oils.
By Irina Slav for Oilprice.com
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