Crude oil prices started the week with a loss as fears of an escalation between Iran and Israel dissipated.
The latest events in the Middle East appear to have convinced traders that there is no immediate danger of all-out war, and they are therefore offloading their oil positions. This brought Brent crude below $87 per barrel and West Texas Intermediate below $83 per barrel.
That’s bad news for Saudi Arabia, which needs oil prices near $100 a barrel to balance its budget, according to a new estimate from the International Monetary Fund, which attributes the change to cuts in Saudi oil production .
Speaking of $100, it seems institutional energy commodity traders aren’t too worried that this could happen. According to a recent Wall Street Journal report, they are focusing on unused production capacity to justify a rather calm attitude. And this is regardless of the fact that unused capacity would only be used if its owners wish.
This latter fact becomes even more important in light of the observation that “OPEC’s market power is greater this year than last year”, as made by Jorge Leon, senior vice president of Rystad Energy.
Meanwhile, economic concerns continue to put downward pressure on prices. This week will see the release of the final estimate of US GDP growth for the final quarter of the year, and there appears to be a substantial downward revision, from 3.4% to 2%. The Fed, meanwhile, remains reluctant to cut rates, further harming hopes of stimulating demand.
Another notable twist in recent oil history is that oil prices have also not benefited from the prospect of new US sanctions on Iran. Normally, sanctions raise concerns about disrupting oil supplies, but not this time, ING noted in a recent commodities market update.
By Irina Slav for Oilprice.com
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