Oil prices pulled back Tuesday from the more than two-year highs they reached a day earlier on the back of a purge of high-level figures in Saudi Arabia, a key crude producer.
December West Texas Intermediate crude
declined by 36 cents, or 0.6%, to $56.99 a barrel on the New York Mercantile Exchange, while January Brent crude
gave up 50 cents, or 0.8%, to $63.77 a barrel on the ICE Futures Europe exchange.
On Monday, WTI and Brent both jumped more than 3% for their biggest percentage gains since late September, as they settled at their highest levels since June 2015. In recent days, Saudi Arabia has seen government officials, members of the royal family and businessmen detained on anticorruption charges as Crown Prince Mohammed bin Salman makes moves to consolidate power in the kingdom.
Monday’s move higher “was almost entirely due to the Saudi situation,” said Brian Youngberg, senior energy analyst at Edward Jones. “Geopolitics tend to have an impact on oil prices, and this is the latest example.”
It’s not just about the “power/corruption arrests, but also some incremental issues between Iran and Saudi Arabia,” he said.
Saudi Arabia and Iran have no diplomatic relations and are among the world’s biggest oil producers.
“Bullish sentiment in the oil market was already present before the allegations,” said Adrienne Murphy, chief market analyst at AvaTrade. “The commodity needed a significant political event to catapult prices—the purge simply provided this ‘big news’ event, sending valuations higher.”
Still, “it remains to be seen if the purge will continue to support prices in such a dramatic way,” as there “will unlikely be any disruptions to the supply of oil,” she said.
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Meanwhile, the Organization of the Petroleum Exporting Countries said it expects medium-term global oil demand growth from 2016 to 2022 to “remain healthy,” according to the World Oil Outlook to 2040 report released Tuesday. It forecast an increase of 6.9 million barrels a day, or an average annual increase of almost 1.2 million barrels a day, for the period to 102.3 million barrels a day from 95.4 million barrels a day. OPEC will release its monthly oil market report on Monday.
Petroleum-supply data is also set to take center stage in the U.S., with weekly reports from American Petroleum Institute due later Tuesday and the Energy Information Administration out Wednesday morning. Last week, both reports revealed bigger-than-expected declines in domestic crude inventories.
Back on Nymex, petroleum product prices inched lower along with oil. December gasoline
fell 0.8% to $1.816 a gallon and December heating oil
lost 0.5% to $1.932 a gallon.
December natural gas
traded at $3.114 per million British thermal units, down 0.6%, after rallying by 5% Monday.
“Despite the Monday price jump, preliminary data continues to show U.S. production testing record highs, with total dry gas production recently hitting a new record of 76.4 [billion cubic feet a day] ,” said Robbie Fraser, commodity analyst at Schneider Electric. “That should continue to cap upside risk in the current market, even as export demand and lower storage levels pose additional bullishness relative to recent winters.”