In a recent statement, Prince Abdulaziz bin Salman, Saudi Arabia’s influential oil minister, dismissed claims of weakening crude demand as a mere ploy by speculators. According to a Bloomberg report, Prince Abdulaziz bin Salman asserted that the talks of declining crude demand, which have been held responsible for the recent decline in oil prices, do not reflect reality.
Crude Oil Prices: Recent Trends
In late September, Brent crude, the global benchmark, came close to crossing the $100-a-barrel mark. Similarly, West Texas Intermediate crude, the U.S. benchmark, briefly reached its highest level in over two years, surpassing $95 a barrel before retracting.
However, the rally did not sustain its momentum. Following an attack by Hamas on southern Israel on October 7, concerns grew about a possible wider conflict that could disrupt oil flows in the Middle East. Consequently, crude oil prices rose. Nevertheless, this surge was short-lived. Both Brent and WTI experienced a significant drop on Wednesday, falling below $80 a barrel, marking their lowest levels since mid-July. However, there was a slight rebound on Thursday.
Factors Impacting Crude Demand
According to analysts, weak data from China has intensified concerns about demand from the world’s second-largest crude consumer. Furthermore, worries are mounting in the United States regarding potential economic slowdown and the overall health of the consumer, which may negatively affect crude oil demand.
Oil Market Uncertainty: Supply Concerns and Misinterpreted Data
The recent surge in oil prices during the summer and fall can largely be attributed to concerns over supply. In July, Saudi Arabia implemented a production cut of 1 million barrels a day, which has been extended until at least the end of this year.
Many analysts speculate that the current weakness in oil prices will prompt the Saudis to announce an extension of the production cut well into the first quarter of next year.
Addressing the recent rise in crude exports from Arab members of the Organization of the Petroleum Exporting Countries (OPEC), Abdulaziz, the Saudi energy minister, believes that people are misinterpreting the data. He explains that these export numbers are seasonal, with shipments falling in summer and rising in September and October. Therefore, they do not accurately reflect an increase in production.
Abdulaziz considers it an “abuse of the numbers” to overlook the distinction between exports and production.
Helima Croft, head of global commodity strategy at RBC Capital Markets, shares her insights on the situation. She believes that the market’s concerns about Chinese demand and the broader macroeconomic outlook are contributing factors that may lead Saudi Arabia to extend its unilateral 1 million barrel per day cut until the first quarter of 2024. Croft questions whether the Saudi energy minister will consider another short squeeze if current trends persist, as there are currently no indications that he plans to shift from a strategy focused on market share maximization.
As uncertainty continues to loom over the oil market, it remains to be seen how Saudi Arabia will navigate these challenges and what impact it will have on global prices.