Oil steadies as Saudi Arabia and the UAE signal efforts to balance the markets
The commodity is in bearish territory performing below $60 per barrel following the levy of additional tariffs by the US on China
Oil will begin trading with renewed optimism this week after Saudi Arabia signalled its intention to step up measures to halt the drop in prices to below $60 per barrel.
Brent futures for October settlement finished 2 per cent higher at $58.53 per barrel on Friday as markets anticipated corrective measures by Opec+, the Saudi-Russia-led coalition, undertaking a drawdown of 1.2 million barrels per day of crude until March.
On Friday, a Saudi official told Bloomberg that Riyadh would do “whatever it takes” to stop the slide in prices and was considering all options. The official did not disclose what those measures were.
Saudi Arabia, the world’s largest oil exporter, together with other producers in the Opec+ alliance in May last year had reversed an output cut to boost production in response to US pressure to lower prices and the prospect of sanctions against Iran. The alliance, however, reinstated the reduction at Opec’s annual meeting in Vienna in December after a nearly 37 per cent crash in prices by December.
The alliance has since undertaken supply corrections as the producers remain wary of surging production of US shale.
On Friday, UAE Energy Minister Suhail Al Mazrouei wrote on Twitter that Opec+ will hold a technical committee session on September 12 in Abu Dhabi.
He also reassured the markets that inventory overhang targeted by the alliance was in decline.
“Demand remains healthy (despite the market’s temporary overreaction, which is driven by speculation). I am confident that Opec+ will continue its strong compliance with agreed production levels,” he tweeted.
He wrote the UAE would continue to support Opec and non-members in adopting measures to balance the oil markets: “The United Arab Emirates remains committed to the Opec and non-Opec agreement, which has brought greater market balance and improved market stability.”.
Brent crashed to an eight-month low of $56.23 per barrel on Thursday as the oil markets entered bearish territory following the escalation in the trade war between the US and China.
The benchmark for light, sweet crude has lost 7 per cent of its value so far this month, after the US decision to impose 10 per cent tariffs on $300 billion (Dh1.1 trillion) worth of Chinese imports.
The move caused a rout in global stocks and commodities. The West Texas Intermediate benchmark registered its steepest single-day decline in four and half years on August 1, following the announcement and Brent losing 7 per cent of its value the same day.
Oil prices continued its losses as the Chinese yuan slipped past the key threshold of 7 to the dollar. Following the depreciation, the US labelled China a currency manipulator, which prompted the People’s Bank of China to ease tensions by fixing its currency at a higher midpoint to the dollar.
These measures have done little to reduce market anxiety, which anticipated a protracted stalemate between the world’s two biggest economies. The trade dispute has kept Brent within a tight band between $60 and $70 per barrel over the past two months.
“The oil business sees its cash flows at risk,” Norbert Ruecker, head of economics and next generation research at Julius Baer said in a recent note.
"The shale oil producers are set to become even more cautious with spending. That said, the elevated backlog of drilled but uncompleted wells supports ongoing production growth. The petro-nations are very likely to confirm outspokenly their policy of production restrictions," he said.
Updated: August 10, 2019 06:42 PM