Rising Tensions Between Saudi Arabia and Russia as Crude Oil Prices Drop
The crude oil market is experiencing yet another shift in balance as Saudi Arabia and Russia are at odds over production cuts. Russia continues to pump large volumes of cheaper crude oil into the market causing prices to plummet. Saudi Arabia has expressed anger towards Russia for not adhering to their previous pledge to curb production in response to Western sanctions. These tensions come ahead of the OPEC+ meeting set for Vienna on June 4, where production cuts are expected to be discussed once again.
Saudi Arabia’s Efforts to Boost Prices
Saudi Arabia’s ambitious plan to transform its economy is reliant on higher oil prices. Crown Prince Mohammed bin Salman has launched development projects estimated at $81/bbl, which puts him under immense pressure to maintain high oil prices. In early April, Saudi Arabia, Russia, and other OPEC+ members agreed to production cuts in an effort to raise oil prices. Despite the production cuts led by Saudi Arabia, crude oil futures are ~10% lower than in early April. Brent crude closed at $76.95/bbl last Friday.
Russia’s Refusal to Adhere to Cuts
The latest available data reveals that Russia is still producing large volumes of crude oil, adding to a global surplus and pushing prices down. Although the Saudi energy minister signaled a further production cut was likely, Russia’s deputy prime minister contradicted him by expressing doubts about further reductions.
Impact on ETFs and Goldman Sachs’ Forecast
The oil market shifts are felt in the ETFs as well. ETFs such as United States Oil Fund, LP ETF (NYSEARCA:USO), ProShares Trust II – ProShares Ultra Bloomberg Crude Oil (UCO), and Invesco DB Oil ETF (DBO) are affected. After OPEC+ unveiled its surprise production cuts, Goldman Sachs raised its year-end Brent crude price forecast to $95/bbl and its forecast for next year to $100/bbl. Goldman Sachs reiterated its bullish call on crude oil and other commodities this week.
More on Oil
The crude oil market is in constant flux, and there is much to observe in terms of data and trends. Stay informed through articles like Oil Data Continues to Fly In The Face Of Skeptics and Weak Demand For Fuel Pushes Down Gasoline Pump Prices for Memorial Day.
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