Oil prices slide back after spike on Saudi Arabia’s statement
Earlier optimism by crude oil exporters on improved trade waned yesterday as prices of the commodity fell later in the day, releasing fleeting gains made after the Saudi Arabian cabinet reiterated its commitment to work with other producers, as a firm dollar and concern over global oversupply reasserted themselves.
Prices rallied briefly after Saudi Arabia said in a statement the kingdom remained ready to work with other producing and exporting countries to stabilize prices.
Specifically, U.S. West Texas Intermediate (WTI) crude futures CLc1 were down by 68 cents a barrel at $41.22 a barrel by 1413 GMT, having touched a session high of $42.75 following the Saudi statement.
Benchmark January Brent futures LCOc1 were last down 23 cents at $44.43 a barrel. The price hit an intraday high of $45.73 earlier in the session.
Oil prices have halved over the last 12 months after Organisation of Petroleum Exporting Countries decided to maintain its production levels, or even increase them, to retain market share, in part by forcing higher-cost producers elsewhere to cut output.
Saudi Arabia has previously said it was willing to cooperate with other oil producers to maintain oil price stability, but the comments on yesterday arrived as futures prices were barely holding above 2-1/2 month lows.
Big hedge funds have increased their bets that oil will continue to fall, according to data from the U.S. Commodity Futures Trading Commission (CFTC) last week.
Speculators now hold more positions that are betting on a drop in the oil price than at any time since at least 2009, according to Reuters data.
Morgan Stanley’s commodities research team said they expected to see a rise in the physical market towards the end of the year, as refinery margins remain robust and maintenance schedules for next month are expected to be light.
The team believed that this might not be enough to underpin the broader market, pointing out that “as long as markets are oversupplied, even if it’s by a shrinking amount, technical factors and the U.S. dollar will remain the primary price-setting mechanisms.”