Crude prices came under pressure again today. According to Reuters (from last week), the Saudis “will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two”. Their goal is to shake out some of the high-cost competition (such as the US). The Saudis also do not want to choke off the economies of their customers by cutting production. Current production levels are likely to stay unchanged unless there is a significant price move to the downside from here. Spot crude is now holding right in the middle of the Saudis’ preferred range at around $85/bbl. Both OPEC and non-OPEC producers are not particularly happy with Saudi Arabia right now (particularly Russia, Iran and Venezuela) – these countries all want to see production cuts.
A significant difference remains in the demand profile between the international crude markets and those in the US. While both of the futures curves shifted sharply lower, the WTI curve, unlike Brent, remains in backwardation. It means that US crude oil market participants have an incentive to take oil out of storage rather than storing it. This indicates a more robust US spot crude demand than exists globally.
|Source: Deutsche Bank|
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