Crude oil began trade on Friday with a slight decline as traders weighted mixed messages from the two biggest members of OPEC+.
Earlier in the week, prices jumped following comments made by the Saudi Energy Minister that suggested the group may announce further production cuts at its next meeting in early June.
"Speculators, like in any market they are there to stay, I keep advising them that they will be ouching, they did ouch in April, I don't have to show my cards I'm not a poker player... but I would just tell them watch out," Abdulaziz bin Salman said on Tuesday.
Two days later, however, his Russian counterpart within the OPEC+ context, Deputy Prime Minister Alexander Novak, came out with a different message.
Speaking to Russian media, Novak said he did not expect any change in policies at the next OPEC+ meeting, noting that U.S. debt ceiling uncertainties and a slower-than-expected recovery in demand from China were pressuring prices.
Still, Novak said, he expected Brent crude to rebound above $80 per barrel by the end of the year.
Oil prices have shed some 10% since the start of the year, with the decline being mainly attributed to the slower-than-expected post-pandemic recovery of China.
Some upward pressure for prices at the end of the week could come from the news that President Biden and House Speaker McCarthy are nearing a deal on the debt ceiling, which would enable the federal government to avoid imminent debt default.
According to an unnamed official who spoke to Reuters, the deal would raise the ceiling for two years and put caps on most government spending—something that Republicans have insisted on while Democrats wanted a higher debt ceiling with no conditions.
Thanks to that upward pressure, both Brent crude and West Texas Intermediate could end this week’s trade with gains, albeit quite modest ones.
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They both realize, however, that OPEC+ doesn’t see the need to cut production since the current weakness in oil prices has nothing whatsoever to do with the fundamentals of the global oil market and overwhelmingly everything to do with persistent fears of a global banking or financial crisis triggered by a shaky US banking system and weak data about the US economy.
They also realize that cutting production in such circumstances would prove futile.
Only when these fears subside or disappear altogether will pressure on oil prices eases thus enabling prices to recoup all their recent losses and resume their surge.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert