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Crude oil markets impacted by interest rate hikes, concerns over the U.S. debt ceiling, state of U.S. and China economies

Rashid Husain SyedOil markets faced another week of decline, marking the third consecutive week of falling prices. On Friday, prices settled over one percent lower.

The market’s sentiment is heavily influenced by growing apprehension surrounding the economies of the U.S. and China, fears of a possible recession, and the subsequent decrease in global crude demand.

Brent crude futures closed down 81 cents, or 1.1 percent, at $74.17, while West Texas Intermediate (WTI) U.S. crude futures fell 83 cents, or 1.2 percent, to $70.04. Both benchmarks saw a decrease of around 1.5 percent week on week.

Despite the new round of oil output cuts announced by OPEC and its allies, including Russia, in the extended OPEC+ agreement on April 2, oil prices have failed to rally. Additionally, crude markets have been impacted by interest rate hikes and concerns over the U.S. debt ceiling.

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The upcoming OPEC+ meeting scheduled for June 4 will likely discuss the state of the market and the potential for further output cuts. However, OPEC has denied the possibility of additional production cuts at this time. Iraq’s oil minister, Hayan Abdel-Ghani, stated that he does not expect OPEC+ to decide on further cuts during their meeting in Vienna on June 4.

In a report released on Thursday, OPEC stated that the demand for its crude in the July to December period is expected to be 90,000 barrels per day (bpd) higher than previously projected. The organization maintained its global oil demand forecast for 2023, indicating that it does not plan to implement another output cut.

OPEC’s decision-making has been unpredictable, often confounding industry analysts. The organization has mastered the art of keeping the markets guessing. Notably, in its previous meeting, OPEC’s choice to cut output went against most analysts’ expectations.

Given the financial requirements and perspective of Saudi Arabia, the key driving force behind OPEC+, it is worth considering the potential for surprise decisions. The International Monetary Fund (IMF) predicts Saudi Arabia will be unable to balance its budget with oil prices remaining below $80 per barrel. This projection suggests the kingdom will return to a fiscal deficit after nearly a decade of surplus.

The IMF’s assessment aligns with the view of Bloomberg Economics, which estimates that Saudi Arabia needs an oil price above $80, potentially nearing $100, to meet its spending commitments and maintain the stability of its social contract with citizens. These projections help explain the unexpected decision OPEC and its allies made in early April to cut oil output and support prices.

To meet the financial obligations of the Saudi government, Saudi Aramco, the country’s oil giant, has announced increased payouts to shareholders, including a performance-linked dividend on top of a base payout. This move aims to boost revenues for the Saudi government, which holds over 90 percent of the stock, despite a nearly 20 percent decline in quarterly profits.

Russia has also reaffirmed its commitment to reducing oil production by 500,000 bpd, as pledged earlier this year. The market remains uncertain as OPEC+ prepares to meet in June, and the outcome of the meeting is yet to be determined.

Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.

For interview requests, click here.

The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.

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