What kind of stunt UAE will crash oil prices
On Friday evening, oil prices went down sharply: the media reported that the United Arab Emirates (UAE) wants to leave the cartel of oil-exporting countries (OPEC). However, a rebuttal later came out and futures on “black gold” began to trade in the green zone. How did the UAE crash oil prices?
How does the UAE influence oil prices?
How does the UAE influence oil prices? The Organization of Petroleum Exporting Countries was established in September 1960; initially it consisted of five states (Iran, Iraq, Kuwait, Saudi Arabia and Venezuela). Now it consists of 13 countries. Saudi Arabia has the largest production volume (12.5 percent of the world market), and the UAE has four.
Why did the announcement of the withdrawal of one of the oil-producing countries have such an impact on the behavior of the players? The fact is that the Emirates, having abandoned the obligation to limit production, can quickly increase oil production with their existing capacities. And the greater the supply, the less demand and, consequently, the price. The second factor is a reduction of the cartel’s share in world output: not all oil-producing countries are members of the organization, and Russia and the United States, for example, are not.
The key point is not whether the UAE will withdraw from OPEC. But whether that country will withdraw from the OPEC+ arrangements, because as such there is no classic association of oil-exporting countries right now. Right now OPEC is not a functioning body of influence on the market; we have to fear the collapse of the OPEC+ deal.
The OPEC+ oil production reduction deal was formed in November 2016 due to the discontent of many producing countries with low prices on the market. In this format, ten more countries, including Russia with a share of 14 percent of global production, joined the first group of countries in discussing the volume of crude production to stabilize prices.
The organization of exporting countries would not be able to control the volume of production of crude oil without the agreement with the ten more players, because it does not have a blocking share of the market. To have a significant impact on prices, the organization must greatly reduce production, the expert explained. And if we consider that the largest player in this block is not the UAE, but Saudi Arabia, it turns out that the Saudis should rise and then reduce their production to influence prices by dozens of percent.
Earlier, we reported that oil prices were rising after the news about the withdrawal of the UAE from OPEC was disproved.
Brent crude oil futures its lowest since 2021 amid banking crisis
The cost of May futures on Brent crude oil fell to $72.74 per barrel, losing 0.31%, according to data from the ICE exchange. Brent was trading at about $70 a barrel at its low for the day. That’s a record low for at least 15 months, that is, since December 2021.
WTI prices are also falling, with futures prices down to $66.43 a barrel (-0.46% from last week’s close), according to the exchange. WTI was trading at $64.12 a barrel at its low for the day. This is also the lowest value since at least December 2021.
The market is thus responding to the banking crisis: since the beginning of March, three banks (Silvergate Bank, Silicon Valley Bank, Signature Bank) have closed their doors in the US, and the day before, on March 19, Swiss UBS took over its rival, Credit Suisse, buying the bank for $3.2bn amid fears of its collapse. Investors fear a recession, which may cause a crisis in the banking sector, as a recession, in turn, would lead to lower demand for fuel, the agency said.
“Oil prices are moving mainly because of fears [of further oil price dynamics]. Supply and demand fundamentals are almost unchanged, only the banking problems have an impact,” said Price Futures Group analyst Phil Flynn.
Oil prices lifted from daily lows helped the S&P 500 and Dow Jones indices, which rose Monday, writes Reuters. Traders raised their expectations that the U.S. Federal Reserve would refuse to raise rates this Wednesday to protect financial stability amid banking problems, the agency noted.
“Volatility is likely to persist this week, with broader financial market concerns likely to remain at the forefront,” ING Bank analysts said in a note. They add that the impending Fed decision adds to uncertainty in markets.
Earlier we reported that the price of Brent dropped below $75 per barrel for the first time in more than a year.
Gold prices will reach $2,075 “in the coming weeks”
Gold prices may continue to rise, analysts polled by the CNBC TV channel said. In their opinion, the difficulties of banks and a possible turning point in the policy of the Federal Reserve indicate the possibility of a new rise in gold prices.
“I think it’s likely that we’ll see a strong move in gold in the coming months. The stars seem to be aligned for gold, and it could soon break new highs,” said Craig Erlam, senior market analyst at brokerage Oanda.
The expert explained that interest rates are now at or close to their peak, and the market, amid recent developments in the banking sector, is laying on an earlier than previously expected start of rate cuts. They also added that this situation would boost demand for gold even if the U.S. dollar weakens.
This month, Fitch Solutions rating agency predicted that gold prices would reach $2,075 an ounce “in the coming weeks” amid global financial instability, writes RBC. The company also added that gold prices will remain at a higher than pre-pandemic levels in the coming years. Craig Erlam confirmed this forecast.
Other Wall Street experts are also predicting a long-term rise in gold prices. For instance, Tina Teng, analyst for British financial company CMC Markets, thinks that the U.S. Federal Reserve’s sooner departure from its policy of raising interest rates might provoke another rally in gold prices due to the weakening U.S. dollar and falling bond yields.
Earlier we reported that oil prices accelerated their decline, continuing a trend from the beginning of the week.
Analysts at U.S. bank Goldman Sachs revised its forecast on oil prices
Analysts at U.S. bank Goldman Sachs, one of the most optimistic forecasts about the cost of oil, changed its earlier forecast about the growth of oil prices to $100 in the next 12 months, Bloomberg said.
Now analysts predict that Brent crude oil will reach $94 per barrel in the next 12 months and $97 per barrel in the second half of 2024, the publication said.
The bank said oil prices have fallen despite rising demand in China, given pressure on the banking sector, recession fears and investor withdrawal.
“Historically, after such traumatic events, price adjustments and recoveries are only gradual,” the bank notes.
This week, the situation surrounding Swiss bank Credit Suisse triggered panic in the markets as oil plummeted to a 15-month low and Brent crude fell 12% to below $73 a barrel.
After the price decline, the bank expects OPEC producers to increase production only in the third quarter of 2024, contrary to Goldman’s forecast that it will happen in the second half of 2023. Analysts at the bank believe a barrel of Brent blend will reach $94 in the next 12 months and trade at $97 in the second half of 2024.
Bloomberg reported that the largest oil exporter, Saudi Arabia, announced higher April oil prices for markets in Asia and Europe.
Earlier, we reported that Iraq and OPEC advocated for guarantees of no fluctuations in oil prices.
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