Oil Prices Drop As Saudis Reportedly Aim For $70 to $80/bll Price Range

WTI dropped $1.15 to settle at $68.72 per barrel. File Image / Pixabay

The soft performance of crude this week on signs of plentiful output and waning demand suggested that a correction would be forthcoming, and that correction came on Wednesday, with West Texas Intermediate falling over 1.5 percent as demand concerns (including those in Saudi Arabia) mounted.

WTI dropped $1.15 to settle at $68.72 per barrel, while Brent  fell 91 cents to $77.26 per barrel.

The reason for the losses were said to be two-fold: Tropical Storm Gordon, which had threatened to damage infrastructure (specifically, dozens of offshore platforms), never became a hurricane, prompting oil companies to prepare to resume operations; and the U.S.-China trade dispute inspired further fears of a weakening market on news that U.S. president Donald Trump could impose levies on $200 billion more of Chinese imports by the end of this week.

Turkey's falling lira also played into the fears of negative global economic impact, the theory being that its currency crisis could spread to other emerging markets.

The current price range of benchmarks isn't too far off what Saudi Arabia and many other countries want to see, according to Reuters: industry sources told the news agency that in the spirit of complying with U.S. demands for lower prices but intent on making enough revenue to finance economic development projects, the kingdom is aiming to keep prices between $70 and $80 per barrel.

The sources also suggested that the Saudis already took action to ensure this price range last week, when Brent was heading toward $80 and the kingdom told the market about an increase in its production last month sooner than it would have usually released such information.

One source remarked, “The Saudis will probably put a few more dampening signals out, given where prices have gone.”

A delegate for the Organization of the Petroleum Exporting Countries (OPEC) told Reuters that the aspiration for the $70-$80 range similar to that of other producers: “Everybody has been talking about these kinds of numbers.”

Interestingly, buried in the Reuters story was a disclosure from one source that the kingdom’s crude production plans were made according to its customers’ needs, but that the demand has not transpired as anticipated: “We can raise production as high as 11 [million barrels per day] or even 12 [million bpd], but then where will it go?

"We can’t push oil to the market.”

The Saudis however may have their work cut out for them, if predictions from the camp that maintains a tightening is imminent prove true: Stephen Innes, head of trading Asia and market commentator OANDA, said on Wednesday, "With the anticipation of up to 1.5 million bpd affected by the U.S. sanctions on Iran, one would expect prices to move higher in the weeks ahead."

John Driscoll, chief strategist of JTD Energy Services, earlier this week doubted crude would go over the $80 per barrel this market and theorized that only a geopolitical event could push prices up significantly.