Oil prices saw a further decline on Thursday, with market analysts pointing to a possible shift in Saudi Arabia’s approach to crude oil pricing. According to George Pavel, General Manager at Capex.com Middle East, the Kingdom may be moving away from its unofficial price target in anticipation of increased output.
In a market analysis shared with Rigzone, Pavel explained that this potential shift dampened market sentiment, despite positive indicators such as stronger U.S. fuel demand and reduced oil inventories.
“Concerns about global demand, particularly from China, along with the potential return of Libyan oil to the market, added further pressure on prices,” Pavel noted.
China’s recent economic policies aimed at easing financial conditions were acknowledged by Pavel, but he suggested more substantial fiscal stimulus may be necessary to boost household spending and spur economic growth.
Pavel expressed uncertainty about the broader oil market, highlighting weak demand from major global economies. He also pointed to rising geopolitical tensions in the Middle East as a risk factor, warning that any conflict could disrupt oil production.
“While a ceasefire may be in sight, the uncertainty creates a significant risk for crude prices. Any supply disruption from this crucial region could trigger a spike in prices,” Pavel cautioned.
However, he added that with global demand still lagging, the market may struggle to stabilize, leading to potential price volatility.
Looking forward, Pavel emphasized that U.S. economic data would be closely watched by market participants, as it could influence crude prices. He highlighted projections that U.S. GDP would grow by three percent in the second quarter, up from 1.4 percent in the first quarter. However, Pavel warned that if actual figures fall short of these expectations, oil prices could face further downward pressure.
In a separate report sent to Rigzone by Skandinaviska Enskilda Banken AB (SEB), Commodities Analyst Ole R. Hvalbye also noted the recent price drop, with Brent crude falling by roughly $2 per barrel. This followed speculation that Saudi Arabia may shift its focus towards boosting production volume rather than maintaining high prices.
Hvalbye reported that Brent prices initially fell by nearly $3 per barrel, reaching a low of $70.7 before recovering to $71.8. He explained that the market reacted to reports suggesting Saudi Arabia could abandon its unofficial $100 per barrel target in favor of increasing output by 2.2 million barrels per day starting in December 2024.
Although the move has not been officially confirmed, Hvalbye stated that it signals a stronger commitment from Saudi Arabia to increase supply. This contrasts with earlier market expectations that the Kingdom might delay the production increase if prices remained below $80 per barrel.
Hvalbye added that if Saudi Arabia’s Energy Ministry confirms the plan, further downward pressure on prices is likely, as the market is already anticipating this increase in supply.
“For months, the market has been skeptical about Saudi Arabia following through with the production hike, but recent signals suggest the Kingdom may proceed with its original plan,” Hvalbye said in the report.
He explained that the decision to increase production is likely driven by Saudi Arabia’s desire to regain market share, while OPEC+ continues to manage output levels carefully.
Hvalbye also pointed out that easing geopolitical tensions between Israel and Hezbollah have contributed to the recent dip in oil prices. Hopes for a ceasefire in the region have eased some of the risk concerns that had previously supported higher prices.
Lastly, Hvalbye mentioned ongoing uncertainty around the effects of China’s monetary easing on future demand growth, which adds another layer of downward pressure on oil prices.
Rigzone has reached out to the Saudi Arabian Energy Ministry for comment on Pavel and Hvalbye’s analysis.
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