Oil Surge Short-Lived As Saudi Aramco Fires Back
Alvexo | Jan 25, 2016 10:25AM ET
After the short squeeze last week and Monday’s crude oil reopening that saw benchmarks rise additionally, prices are once again tracing the downward trend that has defined the commodity for the last several months. WTI and Brent prices that reached as high as $32.77 and $32.80, respectively, were driven early this week by numbers from the Baker Hughes, which reported that the US rig count dropped to only 510 for the week ending on January 22. Though unseasonably cold winter weather conditions throughout the Northeastern states were also seen to drive prices upwards in anticipation of a higher demand, comments from Saudi Aramco during the session have had a noticeably pressuring impact on prices. The burst upwards was likely both overrepresented by traders who lent more momentum than was deserved to marginally good news and temporary, as the cycle reestablishes itself once more. Though demand is forecast to be higher in 2016, the surge above $30 per barrel is likely to prove short-lived.
The comments stemming from Saudi Aramco came from Chairman Khalid al-Falih, who noted that Saudi investment in the oil industry will not slow despite the lower demand and higher price competition currently plaguing the market. The notion of unrelenting Middle-Eastern supply combined with a report that showed lowering Chinese demand for diesel scared prices down during the session, with China printing a diesel demand figure that declined -5.60% in the last year. Middle Eastern producers are unlikely to slow production despite low demand figures, in an attempt to win the long game concerning market share. The game may be played over the course of many years considering the resilience with which marginal producers fight big oil players, which spells weakness for oil as long as the trends persist. Saudi Aramco is poised to weather extremely low prices for a “long, long time”, and the storm may have already created its first casualty in Venezuela, which given its dependence on oil lends clarity to their present issues.
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