“It is widely unclear if indeed the burgeoning Saudi Arabia, Russia association will put a floor under crude oil prices amid the weaker dollar, but there’s every reason to remain buoyant.”
Oil Prices Remain Low
Influenced by a weaker dollar and driven by the growing skepticism that major global oil producers were edging closer to a deal to freeze crude oil production, oil prices have continued lying flat. The news spread like bush-fire on the early periods of the past weeks, sending dollar to a sharp plunge and virtually clearing the hopes and possibilities of hiking September’s interest rates. As that was happening in the US market’s trading Tuesday, oil prices were steadily rising in the main Asian markets, most notably in Singapore.
Meanwhile, the prices in the US erased previous losses and settled higher as the dollar continued wobbling against other global currencies. The weakened US dollar, being arguably the most dominant currency, offers a ray of hope to the other greenback-denominated goods including oil, making them cheaper.
The US crude futures had surged up by 12 cents to end at $44.82 a barrel by the end of August this year. While the New York Mercantile Exchange reported a $44.83 a barrel recently, Brent, the global prices benchmark, reported a slight drop to $47.26 a barrel on Europe’s major futures.
Gene McGillian, Research Manager at Tradition Energy, attributed the happenings to what happened to the US dollar, although it is clear that Russia and Saudi Arabia had a hand on it.
On Monday morning, prices surged temporarily following the talks between the two parties. As nothing, but mere promises of projected strengthened cooperation between Saudi Arabia and Russia hit the mainstream, the skepticism continued affecting the oil prices.
They agreed to create a group that will monitor the crude oil market, an idea that largely remains hard to believe. Dominick Chirichella is a senior analyst at the Energy Management Institute, and, almost much like any oil pundit, wonders if the agreement will eventually work to limit the production.
Algeria’s OPEC uncertainty and the sanguinity
The Organization of Petroleum Exporting Countries (OPEC) is slated to hold a sitting in Algeria later in September in a bid to find a coordinated output pact. The uncertainty isn’t about the meeting happening, but if some member countries will be willing to accept the production limiting.
Iran, Nigeria, and Libya are openly keen on upping their output from their current levels. It only means that, akin to the deliberations of the past two years, the expected agreement will bore zero fruits and the expected output freezing is dying off slowly.
In the wake of the OPEC uncertainty, the anticipated Saudi-Russian cooperation had encouraged several oil pundits that indeed there was some hope in the market. For once, it appeared that countries looked serious in taking action, unlike in the past.
Iran’s President Hassan Rouhani recently met OPEC’s chief Mohammad Sanusi Barkindo, sending chills down the marketer’s spines. They all hope that an agreement to combat the excesses that have severely affected the prices for years.
The global oil supply is higher than the demand, and the markets remain overfed already, as shown by the US’s Department of Energy’s Energy Information Administration. The costs of crude oil and the subsequent petroleum products’ costs remain a record high too, and thus the aura of optimism.
And, of course, the reactions couldn’t miss.
Talking about the move was First Standard Financial’s chief market economist, Peter Cardillo, who used the Saudis move to explain the shift in the way the whole scene is currently controlled. He was even upbeat that a concrete deal was in the offing, and it would help stabilize the prices.
About the vague Saudi-Russia remarks, CMC Markets senior sales trader, Alex Wijaya admitted that the challenge is the two Opec Kingpins trying to convince the markets that their pack isn’t an empty rhetoric. On the same note, Jonathan Barratt who is the current Chief Investment Officer at Sydney’s Ayers Alliance added that the market is complacent and perhaps hopeful that there’s a supply freezing deal.
You will remember that these marketers are still reeling from the 2014’s supply glut that is yet to end. It is from the supply superfluity that saw the prices dip to a nearly 13-year low earlier this year.
In April this year, an attempt that was nearing agreement failed to materialize following Iran’s stubbornness. Iran, a country that had severally suffered due to years of nuclear-related sanctions, couldn’t simply give in and thus the failed plan.
Meanwhile, a section of the investors is eagerly waiting for the US non-farm payroll data that is poised to be out this Friday so that, at least, the markets can gain some direction. As the markets remain hopeful, it is the consumer who is smiling to the dropping dollar and the consequential affordability of the commonly consumed goods.