Oil prices drop following Saudi Arabia’s commitment; investors remain cautious due to Israel’s situation.
By Nicole Jao
October 11, 2023 – 8:32 AM PDT
NEW YORK (Reuters) – Oil prices fell over 2% on Wednesday as fears of disruption to supplies due to conflict in the Middle East receded a day after top OPEC producer Saudi Arabia pledged to help stabilize the market.
Brent futures fell $2.10, or 2.4%, to $85.55 a barrel by 10:41 a.m. EDT (1441 GMT). U.S. West Texas Intermediate (WTI) crude fell $2.55, or 3.0%, to $83.42.
Brent and WTI had surged more than $3.50 on Monday on concern the clashes between Israel and Palestinian Islamist group Hamas could escalate into a broader conflict that could disrupt global oil supply.
Prices settled slightly lower on Tuesday after Saudi Arabia said it was working with regional and international partners to prevent an escalation, and reaffirmed its efforts to stabilise oil markets.
“We’ve taken 6.4% of the refinery utilization rate off the table in the last three EIA (U.S. Energy Information Administration) reports… That’s over 1,000,000 barrels that didn’t go through the refinery,” said Bob Yawger, director of energy futures at Mizuho, a bank.
Moreover, in the higher rates environment moving forward that “could put the brakes on the upside as far as crude oil,” Yawger said.
Interest rate hikes to tame inflation can slow economic growth and reduce oil demand.
Exxon Mobil (XOM.N) agreed to buy U.S. rival Pioneer Natural Resources (PXD.N) in an all-stock deal valued at $59.5 billion that would make it the biggest producer in the Permian shell, the largest U.S. oilfield.
“Both WTI and Brent retreated yesterday as concerns of a sudden and unexpected supply disruption have been swept aside for now,” PVM analyst Tamas Varga said.
Trading house Mercuria sees oil prices reaching $100 a barrel if the situation in the Middle East escalates further, deputy CEO Magid Shenouda said on Wednesday.
Russia and Saudi Arabia met in Moscow on Wednesday, when Russian president Vladimir Putin said that OPEC+ coordination will continue “for the predictability of the oil market.”
OPEC+ is the partnership between the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia.
Putin also urged companies to prioritise the Russian domestic market. The country’s ban on gasoline and some diesel exports was rolled back again last week as diesel exports that arrive at ports by pipeline were permitted.
Elsewhere, investors will be looking ahead to the release of the U.S. Federal Reserve’s September policy meeting minutes due later on Wednesday for clues on future interest rate decisions.
U.S. Treasury Secretary Janet Yellen said that she still expected the U.S. economy to experience a soft landing, despite “additional concerns” brought about by the situation in Israel.
In Europe, the German government confirmed it expects the economy to contract by 0.4% this year because of persistently high inflation.
Global energy consumption will likely increase through 2050 and outpace advances in energy efficiency, the U.S. EIA said in an outlook.
The EIA will release its oil supply and demand expectations for the U.S. later Wednesday.
Reporting by Nicole Jao in New York; Additional reporting by Robert Harvey, Laura Sanicola and Muyu Xu; Editing by Sharon Singleton and John Stonestreet
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What are the potential factors that could impact oil prices in the future, aside from the situation in the Middle East
Oil Prices Fall as Middle East Conflict Fears Recede
October 11, 2023 – 8:32 AM PDT
Oil prices dropped over 2% on Wednesday as concerns about supply disruptions due to conflict in the Middle East eased, following Saudi Arabia’s commitment to stabilize the market. Brent futures fell $2.10, or 2.4%, to $85.55 a barrel by 10:41 a.m. EDT (1441 GMT), while U.S. West Texas Intermediate (WTI) crude fell $2.55, or 3.0%, to $83.42.
On Monday, prices had surged more than $3.50 as tensions between Israel and Palestinian Islamist group Hamas raised fears of a broader conflict that could disrupt global oil supply. However, prices settled slightly lower on Tuesday after Saudi Arabia reassured the market that it was working with regional and international partners to prevent an escalation and stabilize oil markets.
The decline in prices can also be attributed to a decrease in refinery utilization rates. Bob Yawger, the director of energy futures at Mizuho, stated that three reports from the U.S. Energy Information Administration showed a 6.4% reduction in refinery utilization rate, which equals over one million barrels that have not gone through refineries. Additionally, Yawger mentioned that the possibility of higher interest rates in the future could slow economic growth and reduce oil demand.
In other news, Exxon Mobil agreed to acquire U.S. rival Pioneer Natural Resources in an all-stock deal valued at $59.5 billion. This acquisition would make Exxon Mobil the largest producer in the Permian shell, the largest oilfield in the United States.
Analysts from PVM and Mercuria have differing viewpoints on future oil prices. PVM analyst Tamas Varga stated that concerns about a sudden supply disruption have been pushed aside for now, leading to the retreat in oil prices. On the other hand, deputy CEO Magid Shenouda of Mercuria suggested that if the situation in the Middle East escalates further, oil prices could reach $100 a barrel.
Meanwhile, Russian President Vladimir Putin affirmed OPEC+ coordination during a meeting with Saudi Arabia in Moscow. OPEC+ is a partnership between OPEC and its allies, including Russia. Putin also urged companies to prioritize the Russian domestic market and rolled back the country’s ban on gasoline and diesel exports.
Investors are eagerly awaiting the release of the U.S. Federal Reserve’s September policy meeting minutes for insights on future interest rate decisions. U.S. Treasury Secretary Janet Yellen expressed her belief in a soft landing for the U.S. economy despite additional concerns arising from the situation in Israel.
In Europe, the German government confirmed its expectation of a 0.4% contraction in the economy this year due to persistently high inflation.
Looking ahead, the U.S. Energy Information Administration predicts that global energy consumption will increase through 2050, surpassing gains in energy efficiency.
In conclusion, oil prices have fallen as fears of supply disruptions in the Middle East have diminished. Saudi Arabia’s commitment to market stabilization, along with factors like decreased refinery utilization rates and the possibility of interest rate hikes impacting oil demand, have contributed to this decline. However, the situation remains uncertain, and analysts are closely monitoring developments in the Middle East and other global trends that could impact oil prices in the future.
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