Dubai: Oil rose to trade near $91 a barrel after Saudi Arabia said OPEC+ may be forced to cut production to stabilize a volatile market.
‘Extreme’ volatility and a lack of liquidity mean futures are increasingly disconnected from fundamentals, Saudi Arabia’s Oil Minister Prince Abdulaziz bin Salman told Bloomberg. That spurred a choppy session on Monday which saw West Texas Intermediate slump almost 5 per cent before closing steady.
Oil has seen a tumultuous period of trading since Russia’s attack on Ukraine in late February upended trade flows. OPEC+ has reversed all of the output cuts made during the pandemic, but Prince Abdulaziz said OPEC may need to tighten production when it meets next month to discuss supply targets.
“Parts of OPEC+ face supply constraints, and despite saying that they have restored quotas, actual production is undershooting significantly,” said Vishnu Varathan, head of economics and strategy of Asia at Mizuho Bank Ltd. “There’s a broader convergence of views that oil prices are set to fall further.”
Futures have lost about a quarter since early June as escalating fears of an economic slowdown threatened the demand outlook. The potential revival of a nuclear deal with Iran, which could lead to a surge in crude exports from the OPEC producer, has also added to the bearish sentiment recently.
Traders will be watching PMI data from the US and Europe later Tuesday to glean further clues on the state of the global economy, ahead of the Federal Reserve’s Jackson Hole symposium at the end of the week.
Meanwhile, a rally in natural gas prices is likely to spur greater demand for oil as industry and power generators switch from the expensive fuel in a bid to bring costs down. Prices have surged as consumers rush to secure supplies ahead of winter, with concerns over Russian flows rippling across the world.
