It is only Wednesday but this week is already shaping up to be greatly important in the world of oil.
Saudi Arabia has reportedly re-shaped the flotation package for its Saudi Aramco stock-market listing to make the oil giant more appealing to investors.
The Secretary General of the Organisation of Petroleum Exporting Countries (OPEC) has called on all 97 of the world’s oil-producing countries to ally themselves with the energy cartel.
Saudi Crown Prince Mohammed bin Salman, the country’s effective ruler, has warned of soaring oil prices if the world fails to deter what he called Iran’s aggression.
Three factors behind downswing
In the market, crude prices rallied a little, but showed no immediate signs of decisively reversing the long downtrend of the past 12 months.
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One month ago, on September 2nd, Brent was slightly lower, at $58.66, while WTI was marginally higher, at $54.84. Three months back, on July 1st, both were notably higher than today’s level, at $65.06 and $59.09 respectively.
Twelve months ago, Brent traded at $84.98 a barrel and WTI at $75.30 a barrel.
Three issues have contributed to these recent fluctuations: problems in the Chinese economy, fears of a global recession and changes in the general demand for oil. OPEC itself estimates lower oil demand this year compared with 2018, while China’s industrial slowdown seems to have been exacerbated by the trade war with the United States.
Meanwhile, recession fears have grown with a number of indicators flashing red, not least the yield curve on US bonds, which has “inverted”. This means the usual state of affairs, in which yields rise the longer investors are asked to put their money into bonds, is reversed, and yields on longer dated bonds are lower than for the shorter-dated variety.
“The hand of friendship”
This is taken as a sign that investors are fearful for the future and are keen to tuck their money away safely for long period.
Meanwhile, the Financial Times has reported that Saudi Arabia is pledging an annual dividend of $75 billion for investors in about-to-be-floated Aramco and scaling back expansion plans to improve cash flow.
Elsewhere in the desert kingdom, the Crown Prince, speaking after a drone attack on oil facilities that he blamed on Iran, said failure to deter Tehran could mean a surge in crude prices. He said failure to act could embolden Iran and lead to war, which he said would ruin the global economy. Iran has denied any involvement.
On Monday, OPEC Secretary-General Mohammad Sanusi Barkindo told an audience in Russia that the alliance between the 14 members of OPEC and the so-called NOPEC countries, including Russia, which support OPEC’s aims but are not members, had “resuscitated the fortunes of the global oil industry” since it was agreed in January 2017.
He added: “I would like to extend the hand of friendship to all 97 oil producing countries and invite them to join.”