A rally that pushed oil prices higher than they were just before the pandemic hit fell due to uncertainty over OPEC + and the stronger dollar.
The purchase of hedge funds reflected the changing wealth of oil, going from net buyers to net sellers in the six most popular oil and fuel contracts, John Kemp reported in Reuters in his latest weekly column. This put an end to 15 consecutive weeks of buying, Kemp noted.
In addition to the obvious factors affecting oil prices, such as the forthcoming OPEC + meeting that could lead to an agreement to increase production, which would lower prices, there was a new factor: the potential for worsening US-Saudi relations.
The Biden administration released a report last week implicating the Saudi government in the assassination of journalist Jamal Khashoggi, which would be enough to sour bilateral relations, especially after the federal administration announced sanctions on a former senior Saudi intelligence officer. that he will be involved in the crime and the Kingdom’s Rapid Response Force.
“Those involved in the ugly killing of Jamal Khashoggi must be held accountable. With this action, the Treasury is sanctioning the Saudi Rapid Intervention Force and a senior Saudi official who was directly involved in the assassination of Jamal Khashoggi,” the secretary said. treasury, Janet Yellen.
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But more sanctions may come, and they may not target anyone other than the de facto leader of Saudi Arabia, Crown Prince Mohammed, according to a Reuters report. The report cites a UN human rights investigator who said it was “extremely dangerous” for Washington to call Mohammed involved in the crime, but without sanctioning him.
This is where the danger to oil prices really lies. If the US federal government decides to leave this “extremely dangerous” situation and sanction the Crown Prince, the British reaction of the Kingdom would be the US threat to flood the oil markets. While we are in the world of speculation, Saudi Arabia may want to resist the knee-jerk reaction, but since it can do nothing else if US sanctions reach the highest levels of government, it will probably use the oil weapon.
Of course, this may be the reason why Washington has not yet sanctioned Prince Mohammed and may 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 employer: more oil and gas bankruptcies will hardly be news for Washington.
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Outside the world of speculation and in reality, OPEC + is meeting later this week to discuss production. Total production of the enlarged cartel fell last month due to deep cuts in Saudi Arabia, but they have now ended, so production should start this month. The question is how high it would go: AFP reported earlier today that internal tensions are rising in OPEC + and may light up at the meeting.
“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,” Bjarne Schieldrop, chief analyst at the research firm, told AFP. of goods Seb.
While the oil world awaits Thursday’s meeting and its outcome, Congress has adopted President Biden’s $ 1.9 trillion stimulus program and sent it to the Senate. Although it has not yet received final approval, the adoption of Congress has strengthened the US dollar, which usually affects oil prices in a negative way. They also fear that rising fuel demand in China is slowing. However, from the backwind, we have a growing chorus of economists’ voices waiting for a rapid recovery for the US economy, which would boost oil demand, to apply back pressure to all factors pressing oil.
By Irina Slav for Oilprice.com
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