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Crude oil closed higher on Monday but gave up almost all of its early healthy gains, as production cuts in Saudi Arabia alone – allowing Russia and the rest of OPEC+ to continue pumping freely – only highlighted broader weakness in the oil market and Deepening cracks in the cartel.
Showed this weekendThe final failure of the SaudisThe OPEC+ members are coordinating to do “what is needed to bring about better prices in the market,” Ed Morse, global head of commodity research and managing director at Citi, told CNBC.
“We have the potential for supply to be much greater than demand growth is heading for,” Morse said, pointing to the possibility of a recession and adding that the price of crude oil could fall below $70 a barrel.
Nymex WTI Crude Oil Closed First Month (CL1:COM) for July delivery +0.4% At $72.03 a barrel, after rising 4.6% previously, Brent crude for August (CO1:COM) ended +0.6% At $76.57 per barrel.
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The S&P Energy Sector (XLE) fell 0.6% and was among the worst performers in the stock market.
Saudi officials acknowledged that the tepid move in oil prices was less than expected by Energy Minister Prince Abdulaziz, who privately defended the production cut move and resisted short sellers, The Wall Street Journal Reported late Monday.
The cut would raise Saudi Arabia’s production to 9 million bpd, the lowest level since June 2021 and rarely seen in the past 10 years, suggesting that the kingdom is willing to sacrifice market share to prop up prices – potentially at a high costAs the high oil prices so far will not compensate for the loss of revenue caused by the loss of production.
The Saudi cut will add to expectations of a market deficit; The IEA was already projecting a shortfall of 1.9 million bpd by the third quarter, which Rystad Energy said could now reach 3 million bpd.
Analysts agree that the move should at least prevent oil’s recent slide from deepening, but there is much less consensus on whether prices will rise from here.
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