Oil Reverses Course On Vague Russia/Saudi Meeting, But Bank Fears Persist

Meanwhile, the IEA says oil demand could still end the year "with a bang": File Image/Pixabay

Given the rising panic in response to bank collapses this week potentially contributing to demand destruction, it didn’t take much for schizophrenic crude traders to reverse course on Thursday and escalate prices (by 1 percent): an impromptu meeting between Saudi Arabia and Russia in which little was disclosed other than the purpose being to discuss market stability options.

Brent rose $1.37, or 1 percent, to settle at $74.70 per barrel, while West Texas Intermediate gained 74 cents, or 1.1 percent, to settle at $68.35 after the kingdom’s energy minister prince Abdulaziz bin Salman and Russian deputy prime minister Alexander Novak met to discuss how the Organization of the Petroleum Exporting Countries (OPEC) could help maintain market balance.

John Kilduff, founding partner at Again Capital, said, "That news woke up the bulls in the market, and it was kind of expected with the sell-off that we have seen over the past few sessions."

Arguably, the market was equally supported after Credit Suisse was aided by Swiss regulators and U.S. treasury secretary Janet Yellen assured lawmakers that her country’s banking system remained sound.

However, the prevailing concern of investors – that world banks will hike interest rates to try and reign in inflation – remains, which prompted Craig Erlam, analyst at OANDA, to predict that oil trading will continue to be volatile: “Traders are far from convinced that the worst is behind us."

As for the ongoing saga of the questionable efficacy of the sanctions against Russia for invading Ukraine, Bloomberg on Thursday reported that, “Across the world, there are increasing signs that the smooth flow of Russian petroleum is starting to get snarled.”

The news agency went on to point out that fuel-laden ships are floating off the coasts of Europe, Africa, and Latin America, potentially ratcheting up waiting fees.

Giovanni Staunovo, commodity analyst at UBS Group, said, “There has already been a mismatch in what is leaving Russian ports and what is imported by buyers of Russian oil.

“This is translating in higher volumes of oil on water, and considering a limited number of tankers available to transport oil, if those tankers are not unloaded, it will translate in lower exports and production at some point.”

Meanwhile, Grant Smith, a commodities analyst at Bloomberg, maintained optimism for a positive long-term outlook by stating that oil’s recent selloff “may be limited…Brent has steadied after this week’s rout, which was compounded by banks that had sold downside price protection scrambling to cover themselves — a vicious feedback loop known as delta hedging.

“The market’s underlying fundamentals have also received a fresh bill of health from the International Energy Agency in Paris, which predicts that world fuel demand will close out the year ‘with a bang’.”