Recession worries and upcoming meeting between US and Saudi Arabia trigger massive downward move
The price of crude oil fell below the levels on February 24, when Russia attacked Ukraine. The oil market appears to be even more tight, but concerns over a possible recession put pressure on prices. We have seen a massive backwardation in the oil market and it may turn out that the short-term demand for oil is not that strong.
On the other hand, the current sell-off may also be related to President Biden's trip to Saudi Arabia. The Saudi Arabian government has been isolated by the United States for a long time due to human rights violations. On the other hand, Biden needs significantly lower oil and fuel prices to improve its polls among the public. That is why it cannot be ruled out that both parties will conclude some kind of agreement which will lead to increased production on the part of Saudi Arabia.
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Create account Try a demo Download mobile app Download mobile appHowever, it is worth remembering that OPEC has rather limited capacity to increase production. Of course, Saudi Arabia claims to be able to produce 12 million barrels per day, although so far this level of production has only been achieved once. At the moment, Saudi Arabia produces 10.5 million barrels per day. Moreover, the entire cartel may not necessarily want to increase production, as this might cause even greater price drops should the recession prove to be real. Moreover, the vast majority of cartel members simply do not have the capacity to increase production.
On the other hand, it is worth remembering that low oil prices are hitting Russia. In 2014, it was not Western sanctions that nearly "killed" the Russian economy, but the massive drop of oil prices.
OIL.WTI price dropped below the lows which occured at the beginnig of the conflict. In addition, price breaks below the psychological $90.00 per barrel. Next major support is located at $ 85.00. Source: xStation5
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