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Oil Back in the Green but Off Recent Highs as Biden Reportedly Eyes Saudi Meet

Commodities May 19, 2022 02:45PM ET
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By Barani Krishnan

Investing.com -- Crude prices returned to the green on Thursday after a two-day slide but remained well below their recent highs amid reports that President Joe Biden might meet Saudi Arabia’s crown prince after all in a diplomatic turnaround that could ostensibly compel the key oil producer to consider U.S. requests for more supply.

New York-traded West Texas Intermediate, or WTI, crude settled up $2.62, or 2.4%, at $112.21 a barrel. 

The U.S. crude benchmark lost 4% over two prior days after rising a cumulative 14.5% in four sessions before that enabled it to hit a seven-week high of $114.90.

London-traded Brent settled up $2.93, or 2.7%, at $112.04 a barrel.  The global crude benchmark lost 4.5% in two prior days of trading after rising about 12% in four sessions before that, hitting a one-month high of $114.79.

Thursday’s rebound in oil came on the back of hopes that planned easing of Covid restrictions in Shanghai could improve fuel demand in China, the world’s largest importer of oil.

Bullish consumption and stockpiles data on U.S. oil released by the government on Wednesday also helped the market find support, said traders.

Even so, WTI fell to an intraday low of $103.25 earlier while Brent touched a session bottom of $105.72.

One reason for that was the continued uncertainty on whether Europe would reach consensus as a bloc to ban Russian oil to validate the E.U. disapproval over Moscow’s war in the Ukraine.

The other was the CNN report that US officials were working to set up the personal meeting, probably in Riyadh, between Biden and Saudi Crown Prince Mohammed bin Salman on the next scheduled overseas tour of the president.

As long-term allies on everything from energy security to peace on the Arabian peninsula, the U.S. and Saudi leadership should have no trouble meeting at any time, as exemplified by Biden’s predecessor Donald Trump whom some say had “too cosy” a relationship with Salman. 

The trouble though is the caustic relationship between Biden and the crown prince, whom the president once called a "pariah”. That came after the 2018 slaying of Jamal Khashoggi, the Saudi-born journalist and US resident whom the CIA says was executed on Salman’s order due to his criticism of the crown prince. 

Earlier this year, Salman, often referred to as MbS, his initials, declined to take calls from Biden. Media reports say the crown prince, known for temperamental outbursts, typically explodes when any attempt is made to tie him to the Khashoggi killing. It is not known whether Biden will be able to leave the murdered Saudi-native-turned-U.S.-resident out of any communications with the crown prince.

An improvement in the relationship between the two men might alter the dynamics of the supply-strained oil market, if Saudi Arabia, which has spare capacity to produce more, decides to meet the long-running U.S. request for more barrels. 

“It’s too early to put any form of speculation on where this thing could go, with the two sides having to agree first on a meeting; then the timing of when exactly that would be; how the whole thing would come off and whether the Saudis are willing to put a cap on price hikes by releasing more barrels to the market,” said John Kilduff, partner at New York energy hedge fund Again Capital. 

“But as traders, we always look to front-run any development on the market, and this, if it comes to fruition, could easily mean about $10 lower on the flat price of crude, with all other things being equal,” added Kilduff, who has a forecast of $95 lows for WTI in the coming weeks on signs that U.S. production was rising after all to meet current supply tightness and the projected peak summer demand for oil. 

For more than a year now, Saudi Arabia, which heads the 23-state global oil exporters alliance OPEC+, has ensured that the countries in the group provide less crude than needed by the market in order to maintain optimum prices for a barrel.

The 23-state OPEC+, comprising the original 13 nations led by the Riyadh-led Organization of the Petroleum Exporting Countries and another 10 countries steered by Russia, have stuck to monthly increases of just above 430,000 barrels per day. That falls clearly short of demand that is at least 3 million barrels higher, as a direct consequence of the West’s sanctions on Russia that have de-legitimized an equal number of barrels that used to be on the market.

The United States, meanwhile, is experiencing a severe squeeze in the supply of gasoline, and particularly diesel, from the closure and downsizing of several refineries during the coronavirus pandemic. 

Refineries that have stayed in the business are now providing only what they can — or, more accurately, what they desire — without putting any of the money into expanding existing capacity or acquiring the idled plants that can be reopened to provide some measurable relief to consumers. One motivation for the refineries to do that: record profits from the current situation that may be diluted in an expansion. The other is the long turn-around time for any new refinery to deliver a profit.

Bloomberg estimates that more than 1.0 million barrels per day of U.S. oil refining capacity — or about 5% overall — has shut since the Covid-19 outbreak initially decimated demand for oil in 2020. Outside of the United States, capacity has shrunk by 2.13 million additional barrels a day, energy consultancy Turner, Mason & Co says. The bottom line: With no expansion plans on the horizon, the squeeze is only going to worsen.

Saudi Energy Minister Abdulaziz bin Salman last week downplayed any connection between the record high fuel prices in the United States with OPEC+’s actions, saying the lack of refineries was to blame. 

“There is no refining capacity commensurate with the current demand and the expectation of the demand in the summer,” the energy minister and half-brother to the Saudi crown prince said. 

Bahrain’s Oil Minister Sheikh Mohammed Bin Khalifa Bin Ahmed made a similar observation as his Saudi counterpart. “There’s no new [refining] capacity coming,” Sheikh Mohammed said. “Even if you produce more crude, there isn’t demand for it, there aren’t any more refineries.”

Oil Back in the Green but Off Recent Highs as Biden Reportedly Eyes Saudi Meet
 

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Comments (14)
Nick Johnson
Nick Johnson May 19, 2022 6:49PM ET
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Biden has painted himself into a corner and now he needs to go cap-in-hand to the King of Saudi Arabia and beg him to produce more oil.
Barani Krishnan
Barani Krishnan May 19, 2022 6:49PM ET
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Again ... the "begging". You guys seriously need to know the market better before commenting. LOL
Ghassan Sleiman
Ghassan Sleiman May 19, 2022 6:49PM ET
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Oil is only going to be in more demand as time goes by.
Brad Albright
Brad Albright May 19, 2022 6:47PM ET
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A lot of uninformed comment here. This visit is to advance US foreign policy, specifically, to get Europe off of Russian oil and gas in furtherance of our goals regarding Ukraine. This is international leadership in the mould of Ronald Regan. Its too bad so many are so cynical and/or so uninformed as to fail to see it.
Barani Krishnan
Barani Krishnan May 19, 2022 6:47PM ET
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Totally, Brad. And, as you say, whatever you tell this crowd will go in one ear and out the other!
Robert Forsythe
Robert Forsythe May 19, 2022 6:17PM ET
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This president is so incompetent. Keep begging these dictatorships for oil. All the oil is right here in the US and we were a net exporter before this ***in ******became president. MAGA Trump 2024!
Brad Albright
Brad Albright May 19, 2022 6:17PM ET
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There is an effort among the free nations of the West to get European nations off Russian oil. Some of that is already coming from the United Sates ( we remain a next exporter, BTW). Biden's meeting with Saudis Arabia will hopefully further the west's energy objectives. It called leadership, just like Ronald Regan.
Robert Forsythe
Robert Forsythe May 19, 2022 6:17PM ET
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Brad dont be ignorant. For one, there is no leadership of any sort in this administration. Name one thing this President has led on?There is an effort by this administration called the green new deal. Have you heard of it?! And the agenda is to destroy big oil. Go to the gas pump. You'll see the evidence.
Barani Krishnan
Barani Krishnan May 19, 2022 6:17PM ET
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Robert Forsythe  Maybe you should overcome some of YOUR ignorance (also read prejudice). Yes, there is an effort to promote green or renewable energy and one way of achieving that is reducing dependence on fossils. Of course, to an industry and lobby that has been extremely combative year after year toward any effort to wean the world's reliance on it, that initiative would be interpreted as "destroy". What the long-oil crowd also fails -- or refuses flat out -- to recognize is that once it came to crunch time over the inflation accelerated by the Ukraine crisis, the administration began calling for more domestic production. The only caveat was that leases will not be extended or opened new in wildlife and conservation areas. Sans these restricted areas, there is enough acreage to drill and drill VERY profitably at current prices even after all costs, including labor. But you have still have API's Frank Macchiarola and Pioneer's Scott Sheffield feeding us the ba(loney) that nothing is being done.
Robert Forsythe
Robert Forsythe May 19, 2022 6:17PM ET
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lol...your comment, "the administration began calling for more domestic production". where do you get your disinformation? Maybe you should consult with the Ms Mikells over at ExxonMobil and let her know they can drill profitably.... 🤣
Barani Krishnan
Barani Krishnan May 19, 2022 6:17PM ET
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Robert Forsythe  It has been repeated over and over again by Granholm. Maybe you should clean the wax out of your ear to hear better. Does Pioneer need a red carpet to be invited to drill more? It's obvious that shale has been coopted into the OPEC game because all those smaller independent drillers who once accounted for a significant portion of the production are out of the game, leaving the larger ones, including the majors like Exxon and Chevron, who back in 2013-14, barely controlled much of the acreage. Big Oil will do what Aramco wants. Period.
Barani Krishnan
Barani Krishnan May 19, 2022 4:37PM ET
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The reality is 85% of US refining capacity is built for non-domestic crude; hence our inordinate reliance on imports. And our lights aren't made for heavies so desperately needed by our commercial sector now; thus Chevron's efforts to lobby Maduro as well. So before you make another idi(otic) remark about "begging" for foreign oil, consider these.
Brad Albright
Brad Albright May 19, 2022 4:37PM ET
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A voice of reason. It will go in one ear and out the other of the know-nothings, but I appreciated it.
John Wim
John Wim May 19, 2022 4:22PM ET
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Hope Biden get impeached after the November election
John Wim
John Wim May 19, 2022 4:15PM ET
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Gas is 6.29 regular. Where i live. Maybe $10 by summer?
Jim Morrison
Jim Morrison May 19, 2022 3:43PM ET
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so there is no climate change in the middle east? what a m. uppet.
dar dar
dar dar May 19, 2022 3:35PM ET
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well at first I thought he was going to have to go to Russia and bow to Putin but I was wrong he's going to go to Saudi and bow to the prince
Rex Price
Rex Price May 19, 2022 3:32PM ET
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Why deal with Saudi Arabia when we have plenty of oil in the US?  This seems like a major jab at US oil companies.  What about oil independence? It was the Saudis, along with Russia, that dumped oil on our markets to crush the fracking business in the US.
First Last
First Last May 19, 2022 3:32PM ET
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The US fracking business went into high debt then was a big factor.  Currently, seems to have learned lesson.
Brad Albright
Brad Albright May 19, 2022 3:32PM ET
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Good question. I hope you are receptive to an honest answer. This is not about the US needs (we export more than we use), this is about advancing US foreign policy, specifically, getting Europe off Russian oil and gas to deprive Russia in furtherance of our objectives in Ukraine.
William Smith
William Smith May 19, 2022 3:30PM ET
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Welcome to the Biden catastrophe.   His oil policies caused huge oil spikes.  His weakness gave Putin the confidence to invade Ukraine and war to Europe along with their energy shortfalls. He has brought disastrous inflation upon America with his out of control spending programs and non existent energy policy. We will be lucky to survive 4 years of his gross incompetence.   C'mon man, I did this!!!! Take a bow Joe.
First Last
First Last May 19, 2022 3:30PM ET
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Trump's/retrumplicans' praises "gave Putin the confidence to invade Ukraine"
First Last
First Last May 19, 2022 3:30PM ET
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which led to higher inflation.
First Last
First Last May 19, 2022 3:30PM ET
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Scot House   Invasion started in 2014 with Crimea and eastern Ukraine.  Putin didn't withdraw from those areas when Trump was potus.  Putin invaded rest of Ukraine this year because he's sore he lost his  puppet in the US Presidency, and hope to manipulated the US electorate to vote for pro-Putin retrumplicans.
 
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