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Thursday, July 7, 2022

Oil Struggles to Stay Positive as Saudi Minister Declines to Commit to Cuts

Oil Struggles to Stay Positive as Saudi Minister Declines to Commit to Cuts© Reuters.

Investing.com – The oil bears are beginning to smell a divided OPEC and could be closing in again for a kill.

Just a day after the strongest oil price rebound in more than four months, U.S. West Texas Intermediate and U.K. Brent were struggling to stay in positive territory after Saudi Arabia’s Energy Minister Khalid al-Falih said in an interview with Bloomberg it was “premature” to “figure out what needs to be done and by how much” on oil production cuts ahead of Thursday’s OPEC meeting.

Falih’s remarks appeared to send a very different signal to the market compared to the one telegraphed at the weekend by Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin at the G20 that the two energy superpowers agreed on the need for “continued cooperation in oil market rebalancing”.

U.S. was up just 3 cents at $52.98 per barrel by 12:40 PM ET (17:40 GMT), after hitting a sesion high of $54.55, a little shy of the $55 near-term peak predicted ahead by various traders ahead of the OPEC meeting. On Monday, WTI jumped just more than $2, or 4%, for its largest one-day gain since June.

was up 23 cents, or 0.4%, at $61.92, after a session peak at $63.58. Like WTI, Brent also rose 4% on Monday. The market expects the U.K. crude benchmark to reach as high as $65 before the OPEC meeting.

“It looks to me like the selling pressure that’s been the driving force of oil over the past eight weeks could just return, unless OPEC conducts and communicates itself in a better way in the next two days before it meets,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Conn.

Energy Aspects, in a note issued to its clients on Monday, said the most difficult thing for OPEC could be finding the right language to phrase its production cut, if indeed there would be one.

“Communicating it properly to this fragile market will be imperative — a jumbled statement referring to some broad intention to prevent the market from being oversupplied will undoubtedly trigger a further sell-off in prices,” the London-based research outfit said.

The note added that despite widespread expectations that OPEC will announce a cut of 1.3 million barrels or more “the market must be ready for a no-deal scenario, at least in the way the market wants it communicated. Stealth cuts look most likely right now, which means it will take a few months for oil prices to climb back up again.”

Falih, speaking to Bloomberg on the sidelines of the United Nations climate talks in Katowice, Poland, said OPEC needed to “get together and listen to our colleagues, hear about their views on supply and demand and their projections of their own countries’ production.”

“The next road to cross is whether all countries are willing to come on board and contribute to that cut,” he added.

Aside from Falih’s wavering stance on the need for a production cut, sentiment in oil was also weighed on Tuesday by a drop in Wall Street after skepticism about progress in U.S.-China trade talks.

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Source: Investing.com

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