Russia and Saudi Arabia are fiddling with the oil tap. Signing that the market is falling somewhat does not fit into the strategy. So just pump up less, that seems to be the motto. But that doesn't quite work out as intended. Concerns about economic growth put a certain brake on the oil price. Strangely enough, that is not reflected in the diesel price.
The oil market is showing a cautious stabilization. On Monday, July 31, Brent crude oil prices rose to their highest level since mid-April, closing at $85,43 per barrel. This upward trend, which started in July, faltered in the first days of August. On Wednesday, the price fell to $83,20 per barrel. Not a major movement, but a sign that something is shifting in the market.
The correction in the oil price does not fit in with the strategy of the oil-producing countries. It is not surprising that both Saudi Arabia and Russia announced production cuts on Thursday, August 3. Saudi Arabia will pump 1 million barrels per day less in September. The country is effectively continuing the production restriction that was already in effect in August. If there is reason to do so, the oil tap can be closed longer and/or further. Russia plans to pump 300.000 barrels less oil per day in September. Compared to August, production will be increased somewhat. This month the production limit is 500.000 barrels per day.
Stock drop
The big surprise on the oil market came from the US earlier this week. The Energy Information Administration cut U.S. oil inventories by 28 million barrels for the week ending July 17. A historically large depreciation. Analysts expected a relatively large adjustment of 1,4 million barrels and for comparison: last week the EIA made an adjustment of 600.000 barrels. Refineries have been operating hard and the US exported quite a bit of oil last week. At just under 440 million barrels, the stock of crude oil in the US remains neatly around the five-year average for this time of year.
On the demand side, there are concerns about economic developments in China and the EU. The Chinese government has actually been struggling to stimulate economic growth since the end of the corona crisis. As a major buyer of oil, concerns about China continue to concern oil market players. And in a somewhat calmer period, fear flares up again. Economic growth is also showing falters in the EU. Interest rate increases after interest rate increases are not without consequences, although there are of course major differences between the Member States. In that respect, it is remarkable that the US is holding up so well. The Fed may be even more aggressive in raising interest rates and the national debt is not exactly low, but analysts remain reasonably positive about America.
Opaque
The Dutch diesel price does not reflect any economic faltering in the EU. In fact, today (Friday, August 4) the price climbed to its highest level since last January. The luck of the relatively high diesel price is that there is no need to irrigate, we think. The correction in the price of crude oil also ignores the diesel price, at least for the time being. A small decline next week would not be illogical, although the diesel market is very opaque in that respect. Crude oil production and inventory figures are widely collected and published, but diesel doesn't seem to matter.