Oil prices rose on Monday rose to a near two-year high following an anti-graft probe in Saudi Arabia and the tightening of global oil markets due to a production cut agreement between Opec and non-Opec members.
Brent, the global benchmark, was trading at $62.60 per barrel, up by 0.85 per cent at around 5 pm UAE time, while the US crude West Texas Intermediate was at $56 per barrel, up by 0.65 per cent.
“After finding support at $60 per barrel on Friday, crude oil has continued to move higher on a combination of US rig count falling to the lowest since May and not least the weekend news from Saudi Arabia,” Ole Hansen, head of commodity strategy at Saxo Bank, told Gulf News.
On Saturday, Saudi Crown Prince Mohammad Bin Salman began an anti-corruption campaign that resulted in the reported detention of members of the royal family, prominent businessmen and former ministers. Also on Saturday, Saudi Arabia intercepted and destroyed a ballistic missile northeast of the capital Riyadh. The Saudi government blamed Iran for being behind the launch.
“Although it has created some uncertainty in the short term, the [events] should not provide oil with a new dimension of support unless the relationship with Iran, whom Saudi Arabia blame for the Yemen missile, deteriorates any further.”
Opec member countries will meet in Vienna on November 30 to take a decision to extend the output agreement reached between its members and non-members beyond March 2018.
Opec along with other producers including Russia are cutting production by 1.8 million barrels per day to balance oil markets. The pact runs to March and they are considering extending it.
“The meeting on November 30 will be absolutely decisive in determining the oil price. If the group decides not to extend the deal, it will have a downward effect on oil price,” said Jaafar Altaie, managing director at Dubai-based Manaar Energy Consulting.
US shale output is experiencing some kind of limitation but US still has a potential to add extra output, he said.
“In the short term, the prices are strong because the market looks like it is balancing but there is a lot of downward risk and uncertainty that is yet to be seen.”
“I still see $65 per barrel range persisting for at least next three months and possibly for the first half of 2018 but there is a significant downward risk. I see more of a possibility of it going below $60 than above $65 per barrel.”
The current political developments in Saudi Arabia however is unlikely to impact Saudi’s oil policy, according to Francisco Quintana, head of strategy at Foresight Advisors.
“This new push on prices, provoked by Saudi Arabia’s political crackdown, should be, in principle, short-lived, given that in spite of its political relevance, it should not affect Saudi’s oil policy,” Quintana said.