Oil bounces as Saudi prince hints at shift in OPEC+ strategy amid ‘harmful volatility’ in markets

OPEC+ is prepared to cut crude oil production to address the recent drop in oil prices due to weak futures market liquidity and macroeconomic concerns, but the physical world supply remains Saudi Arabia’s Prince Abdulaziz bin Salman said it was very tight. Energy Minister, to Bloomberg on 22 August.

Oil prices have fallen from a high of $120 in March to around $95 in recent weeks as a contracting Chinese economy and fears of a recession in Europe and the US roiled markets.

Oil and gas prices soared after Russia invaded Ukraine and Western countries imposed sanctions on Moscow earlier this year, triggering the worst energy supply crisis since the 1970s.

Saudi Arabia and the United Arab Emirates are the only two of OPEC’s 23 members that currently have the spare and capacity to increase oil production to influence markets.

In response to a Bloomberg News written inquiry, Prince Abdulaziz said the oil futures market was caught in a “self-perpetuating vicious cycle of very thin liquidity and extreme volatility”, and hedging and managing risk for market participants. said the cost of doing so has become exorbitant.

“The paper and physical markets are becoming increasingly disconnected,” said the Saudi prince, but OPEC+ has the means and flexibility to meet the challenges.

However, “without sufficient liquidity,” markets are unable to reflect the reality of physical fundamentals in a meaningful way, severely constraining reserve capacity and leaving the risk of severe disruption. It can give a false sense of security when it’s on the rise.”

On the other hand, Oji observed that futures prices currently do not reflect the underlying fundamentals of supply and demand. That could lead the oil cartels to tighten production when they meet again in September to consider their next production targets.

“Watching this recent toxic volatility disrupt the basic functioning of the market and undermine the stability of the oil market only strengthens our resolve,” Abdulaziz said. .

He believes prices have fallen recently based on “unsubstantiated” information about demand disruption and disruption over sanctions, embargoes and price caps proposed by the Biden administration on Russian oil.

“This is a very significant change in tone from OPEC. Are we now discovering what their ideal price FLOOR is???” energy critic Eric Nuttall said. Tweet.

OPEC+ Toys and Oil

OPEC+ had agreed to increase production by 648,000 barrels per day (bpd) over July and August to fully undo the nearly 10 million bpd cut in May 2020 during the pandemic.

In early August, OPEC announced it would raise production quotas by another 100,000 bpd in September, following pressure from key consumers such as the US and European allies desperate to keep energy prices low. .

Prices fell early in the session after President Biden allowed more crude shipments from OPEC members after talking with French, German and British leaders about reviving the nuclear deal with Iran.

This announcement from the Kingdom of Saudi Arabia may bode badly for leaders in Washington, London and Brussels.

Biden visited Saudi Crown Prince Mohammed bin Salman in July and urged the kingdom to increase global oil production.

But Abdulaziz took a sober look at the White House and said in September that new deals between OPEC and its partners beyond 2022 would help the organization adapt to the liquidity situation. increase.

“Soon we will begin work on a new deal for 2022 and beyond,” the prince said, without giving details, but the risk of supply disruptions remains high and the cushion of excess global capacity is limited. Said very thin.

“We are determined to make the new agreement more effective than before. We are witnessing this recent harmful volatility disrupting the fundamental functioning of the market and undermining the stability of the oil market. Doing so only strengthens our resolve.”

Do not fight the Fed or in this case OPEC.very well done @OPEC Secretariat Amazing.If governments like those in Europe and North America continue to attack the supply side, they will continue to take away their market share, not bring in production increases, and keep prices at current levels,” said market strategist Martin Pelletier. tweet.

Kazakhstan’s Caspian Sea pipeline consortium faces more disruptions after being damaged at two key moorings, which could exacerbate physical supply strains.

Brent oil prices fell on the news, falling 1.4% to $95.40 in London by the afternoon, from $92.36 previously.

West Texas Intermediate futures jumped to around $90 a barrel after trading below $87.

Reuters contributed to this report.

Brian Jung


Bryan S. Jung is a New York City resident with a background in politics and the legal industry. He graduated from Binghamton University.