Oil Skids as Saudi Moves to Boost Output
Crude oil prices dipped early Wednesday on reports that Saudi Arabia signalled that it could boost output to cover any shortfall in supply from Russia, OANDA analyst Jeffrey Halley said in a Thursday note.
This comes after reports that the meeting of the Organization of the Petroleum Exporting Countries (OPEC) on Thursday could result in Russia being exempted from its production quotas, allowing Saudi Arabia and the United Arab Emirates to make up for the gap by ramping up exports.
While this is not expected to alleviate the refining crunch behind soaring petrol and diesel prices globally, it would be a positive development for the global economy and the inflation fight, Halley noted.
If OPEC and allied producers decide to stick to its planned 433,000 per barrel production hike as planned, oil prices are likely to rise sharply. But if Russia is exempted and Saudi Arabia and the UAE indicate they are willing to boost production, oil prices are likely to fall sharply, according to Halley.
OPEC Unlikely to Exempt Russia from Supply Agreement
Australia’s ANZ Bank said in a Thursday note that OPEC is unlikely to exempt Russia from its supply agreement as the foreign minister of Saudi Arabia has said the group has done everything possible to stabilize oil markets, which its members don’t view as facing any supply shortfall.
OPEC’s research department lowered its demand growth estimate by 300,000 barrels per day to 3.2 million b/d in 2022 and views the market as oversupplied by 1.4 million b/d, the bank noted.
Data also show that the group is struggling to increase production. OPEC raised oil output by 130,000 b/d, according to Bloomberg data, despite boosting its quotas by 400,000 b/d, ANZ said.
Oil tanker tracking data also showed that global flows fell by more than 700,000 b/d in May. The oil price slide can also be attributed to a statement by US Secretary of State Antony Blinken that the US is still open to discussions with Saudi Arabia, which markets took as a sign that the Biden administration is still working on reducing energy costs, according to ANZ Bank.
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