Summary
- Saudi Arabia and other OPEC producers consider output increase –WSJ
- Saudi state news agency says kingdom was not considering a boost
- A strong dollar and Chinese demand fears also weigh down prices
Oil prices whipsawed on Monday, plunging early to their lowest since early January but then rallied as reports change about whether Saudi Arabia and other OPEC oil producers are discussing a half-million barrel daily output boost.
Brent crude futures for January slid 0.9%, or 77 cents, to $86.85 a barrel by 12:54 p.m. EST (1754 GMT). U.S. West Texas Intermediate (WTI) crude futures for December dropped 0.7%, or 58 cents, at $79.50 prior to the contract’s expiry later on Monday.
Both benchmarks had slid by more than $5 a barrel early, after the Wall Street Journal reported an increment of up to 500,000 barrels per day (bpd) will be discussed at the OPEC+ meeting on Dec. 4, The Wall Street Journal reported.
Oil reversed more losses after Saudi Arabian energy minister Prince Abdulaziz bin Salman said the kingdom is not considering a potential oil output boost with other OPEC oil producers, state news agency SPA reported, disproving the Journal report.
“It turned the whole situation upside down in a matter of minutes,” said John Kilduff, partner at Again Capital LLC in New York. “The Saudis giveth and then they taketh away.”
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, recently lowered production targets and de facto leader Saudi Arabia’s energy minister was cited this month as saying the group will exercise caution.
Releasing more oil amid U.S. dollar strength and dampened Chinese fuel demand would have moved the market further into contango, aiding more oil to go into storage and driving prices still lower, said Bob Yawger, director of energy futures at Mizuho in New York. “That’s playing with fire.”
Expectations of further hikes to interest rates have strengthened the greenback, making dollar-denominated commodities more costly for investors. The dollar surged 0.9% against the Japanese yen to 141.665 yen, on pace for its greatest one-day gain since Oct. 14.
CMC Markets analyst Tina Teng, stated:
“Apart from the weakened demand outlook due to China’s COVID curbs, a rebound in the U.S. dollar today is also a bearish factor for oil prices.”
“Risk sentiment becomes fragile as all the recent major countries’ economic data point to a recessionary scenario, especially in the UK and eurozone,” she said, adding that aggressive comments from the U.S. Federal Reserve last week also raised concerns over the U.S. economic outlook.
Buy Crypto NowFresh COVID case numbers in China remained near April peaks as the country fights flare-ups nationwide. The front-month Brent crude futures spread reduced sharply last week while WTI flipped into contango, signaling declining supply concerns.