Saudi Arabia’s Oil Gamble: Market Disagrees on Price Rebound
Saudi Arabia and other observers hoping for a rebound in oil prices have received a warning from the market: their expectations may not be met.
In an attempt to reduce the supply of oil, Saudi Arabia had recently reduced its output. This move was intended to create a rally in prices, but market indicators suggest otherwise. One significant indicator is the contango, which measures the difference in oil prices at different delivery dates.
Currently, contracts for Brent oil that will be delivered soon are priced lower than those for future deliveries, indicating that the supply is more than sufficient to meet demand. This situation has been described as bearish by Greg Newman, CEO of Onyx Capital Group, who predicts a potential decline in Brent prices.
As the second-largest crude producer, Saudi Arabia may need to take more drastic measures to boost prices due to sluggish demand, higher interest rates, and an unexpected increase in oil production from the US, Iran, and Russia.
The slower-than-expected recovery in China and Europe has also contributed to weakening fuel consumption and dampened global growth. Despite previous cuts by the OPEC+ cartel, Brent crude prices have fallen by 13% in the first half of the year. This has resulted in lower gas prices for American drivers during the summer travel season.
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While Saudi Arabia has managed to bolster prices for its high-sulfur crude, it has struggled to stimulate the overall market. Dubai prices, influenced by Saudi output, have risen above Brent crude prices, which is unusual. Saudi Aramco benefits from higher Dubai prices in Asia but is exposed to the weaker North Sea market through sales to Europe.
The contango in Brent also discourages investment in oil derivatives, posing an added risk for oil bulls. Although there are pockets of strength, such as increased gasoline consumption in the US and a change in the calculation of Brent prices to include US crude, the outlook for a sustained rally in crude prices remains uncertain.
Factors such as the downturn in petrochemical output, rising interest rates, increased Iranian oil exports, and the resulting gloom among analysts may contribute to a prolonged period of low prices.
Alexander Stefanov
Reporter at CoinsPress
Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.
