Oil clings to US$90 after Saudi warnings trigger market swings

Oil held on to US$90 at the end of a volatile session after Saudi Oil Minister Prince Abdulaziz bin Salman warned that the disconnect between the futures market and supply fundamentals could force OPEC and its allies to act.

West Texas Intermediate pared losses over US$4 during the day to settle above US$90 a barrel, still ending cents below the previous session. The Saudi oil chief has warned that “extreme” volatility and lack of liquidity in the futures market are causing prices to move in a way that does not conform to fundamental supply and demand factors. The divergence could prompt the OPEC+ alliance to act, Bloomberg News reported. So far this month, prices have hovered in a range around US$13.

Prince Abdulaziz represents the largest oil producer in OPEC+ and is arguably the most important player in the 23-nation alliance. He said futures prices did not reflect underlying supply and demand fundamentals, which could force the group to tighten production when it meets next month to review production targets.

“The Saudis have just reminded the oil markets that they are still running the show,” said Ed Moya, senior market analyst at Oanda. “OPEC+ is not happy with how the fundamentals of the oil market are nowhere reflected in current prices. could look to do whatever it takes to keep prices supported here.

Prices fell earlier in the session after US President Joe Biden held talks with French, German and British leaders on reviving a nuclear deal with Iran, a step that would likely allow more shipments of crude by the OPEC nation.

After surging in the first five months of the year, crude’s rally reversed, with losses deepening in the summer trading months. The sell-off, which has been intensified by below-average trading volumes, could ease some of the inflationary pressures sweeping through the global economy that have prompted central banks, including the U.S. Federal Reserve, to raise rates.

Prices:

  • WTI for September delivery, which expires Monday, fell 54 cents to settle at US$90.23 a barrel in New York
  • More active October settled little changed at US$90.36 a barrel
  • Brent for October settlement fell 24 cents to settle at US$96.48 a barrel.

Additionally, China was planning a series of special loans to bolster support for its beleaguered property market, the latest sign that the world’s biggest rough importer is poised to bolster its economy. The apparent need for such a stimulus has heightened fears of a global slowdown.

Increased long-haul cargo flows to Asia from regions such as the United States, which take twice as long as Middle Eastern barrels to reach buyers, have forced spot premiums Persian Gulf barrels to decline in this month’s trading cycle. Meanwhile, options markets have set rising premiums for bearish put contracts that would benefit a buyer if prices fall.

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