A recovery that pushed oil prices higher than they were just before the pandemic faltered with uncertainty surrounding OPEC + and a stronger dollar.
The purchase of oil by hedge funds reflected changes in oil fortunes, moving from net buyers to net sellers under the six most popular oil and fuel contracts, Reuters’ John Kemp reported in his latest weekly column. That ended 15 consecutive weeks of purchase, Kemp noted.
In addition to the obvious factors affecting oil prices, such as the next OPEC + meeting that could result in an agreement to increase production, which would reduce prices, there was a new factor: the potential for worsening US-Saudi relations.
The Biden government released a report last week that implicated the Saudi government in the murder of journalist Jamal Khashoggi, which would be enough to sour bilateral relations, especially after the federal government announced sanctions against a former Saudi intelligence officer who said he was involved in the murder and the Kingdom Rapid Intervention Force.
“Those involved in the hateful death of Jamal Khashoggi must be held responsible. With this action, the Treasury is sanctioning the Saudi Arabian Rapid Intervention Force and a senior Saudi official who was directly involved in the murder of Jamal Khashoggi,” said the Treasury secretary. , Janet Yellen.
Start trading on OPC markets today
But more sanctions may be coming, and these may target none other than Saudi Arabia’s de facto ruler, Crown Prince Mohammed, according to a Reuters report. The report quoted a UN human rights investigator who said it was “extremely dangerous” on the part of Washington to have named Mohammed as involved in the murder, but without punishing him.
That is where the danger to oil prices really lies. If the US federal government decides to get out of this “extremely dangerous” situation and sanction the Saudi crown prince, the Kingdom’s automatic reaction would be to threaten the United States with floods in the oil markets. Although we are in the world of speculation, Saudi Arabia may want to resist automatic reaction, but since there is little more it can do if U.S. sanctions reach their highest levels of government, it is likely to use the oil weapon.
Of course, that may be precisely why Washington has not yet sanctioned Prince Mohammed and may not even sanction him. Despite President Biden’s green energy agenda, the oil and gas industry is a major contributor to GDP and an equally important employer: more oil and gas bankruptcies are unlikely to be welcome news for Washington.
Related video: 5 main uses of oil
Outside the world of speculation and reality, OPEC + will meet later this week to discuss production. Total production for the extended cartel fell last month thanks to the deeper Saudi cuts, but those cuts are now over, so production is set to start rising this month. The question is how high it would rise: AFP reported earlier today that internal tensions are high at OPEC + and could explode 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,” said Bjarne Schieldrop, chief analyst at commodities research firm Bjarne Schieldrop , from AFP.
While the oil world awaits Thursday’s meeting and its outcome, Congress approved President Biden’s $ 1.9 trillion stimulus program and sent it to the Senate. Although it has not yet received final approval, Congressional approval strengthened the US dollar, which generally affects oil prices in a negative way. Fears are also mounting that growth in demand for fuel in China is slowing. Still, on the wind side in favor, we have a growing chorus of voices from economists who expect a rapid recovery in the US economy, which would increase demand for oil, to apply back pressure to all the factors that put pressure on oil.
By Irina Slav for Oilprice.com
More top readings from Oilprice.com: