EMEA News
Crude Prices Bounce Back as Saudi-Iran Spat Puts Pressure on OPEC Oil Deal
Everything from a recovery in the equities market to Russia again suggesting a long-term liaison with the Organization of the Petroleum Exporting Countries (OPEC) may soon happen is credited for a rebound in crude prices on Tuesday, with West Texas Intermediate to settle up 50 cents to $63.51 per barrel and Brent to climb 35 cents to $67.99 per barrel.
This is in sharp contrast to Monday's 3 percent price drop, said to be caused by a sharp sell-off on Wall Street as the tech sector came under fire.
John Macaluso, analyst at Tyche Capital Advisors, remarked, "There's not really one catalyst for crude being up today."
Walter Zimmerman, chief technical analyst at United-ICAP, added, "There is also an element of seasonality at play: yesterday was a little more dramatic than might typically be the case, but it's entirely in keeping with seasonal peaking risk that the month of April brings to crude oil."
But the storm clouds that may negatively impact oil's performance in the near future remain, including the expectation that Saudi Arabia will cut prices for all the crude grades it sells to Asia in May.
Plus, "With excessive hedge fund positions still looming over the market, profit-taking should weigh on oil prices over the coming weeks," according to Norbert Ruecke, head of commodities and macro research at Julius Baer.
There's another gloomy prospect to consider, for those inclined to think that OPEC's cutback deal has all but eliminated the global glut that caused crude prices to tank several years ago: it might end prematurely, due to mounting tension between Saudi Arabia and Iran.
That is the contention of Nitesh Shah, commodities strategist at ETF Securities, who stated in a research note Tuesday that "Saudi Arabia-Iran tensions appear to be intensifying; while this provides a geopolitical premium in oil for now, it could develop cracks in OPEC's unity, which could end the pact prematurely."
He justified his outlook by adding, "The Saudi proxy war with Iran has been raging for over two years, with little reflection in the price of oil until recently; unless investors are constantly reminded of the risks, the premia tends to evaporate within a matter of weeks."
Conflict aside, Shaw also questioned if OPEC was really passionate about a long term liaison with non-members as a de facto extension of the current cutback deal: he told CNBC, "While OPEC are doing really well in terms of compliance with their current deal and are likely to provide strong words of support for continuing some sort of an arrangement going into 2019, they will be talking about how to taper down the scale of the support at this May meeting."
Given so many dissenting voices within OPEC and the desire of so many members to pump all-out, it's difficult to imagine an extended relationship taking place, Russia's persistent support for one notwithstanding: indeed, Iran recently said the cartel could start easing the cutbacks next year and aim for $60 oil to contain the growth of U.S. shale.
