SINGAPORE (ICIS)--Crude prices were trading close their highest level in more than to two years on Tuesday, after sharp rises overnight triggered by concerns over instability in Saudi Arabia amid an anti-corruption drive in the world’s biggest crude exporter.
At 05:57 GMT, January ICE Brent crude futures were trading 7 cents/bbl lower at $64.19/bbl. During late trade on Monday, the contract hit a high of $64.44/bbl, the highest level since 24 June 2015.
December NYMEX WTI crude futures were trading at $57.29/bbl, up 2 cents/bbl. The US contract on Monday hit a high of $57.61/bbl, the highest level since the 2 July 2015.
Prices have rallied sharply since the weekend, when heir-to-the-Saudi throne, Crown Prince Mohammed bin Salman, launched an anti-corruption drive that saw the arrest of leading business and government figures in the country, including members of the Royal family.
“Despite the high profile of some of the [Saudi] princes few were of any real significance. The Crown Prince is flexing his muscles but already controls the most important departments and the military,” said Mark Atherton, head of research at LR Research, in a note for investment research and analysis firm Smartkarma.
“Rumours of a coup are highly unlikely to be true. President Xi [Jinping] in China has shown the power of an 'anti-corruption' drive, and the [Saudi] Crown Prince may well be aping this tactic. It all acts as a convenient smokescreen for the ongoing failure of Saudi policy in Yemen and in relation to Qatar. Tensions will remain high in the region [Middle East],” Atherton said.
Saudi Arabia is the largest producer in OPEC and the world’s leading crude oil exporter.
According to latest data from the International Energy Agency (IEA), Saudi crude production totaled 9.94m bbl/day in September. Meanwhile, the most recent data from the statistical body –the Joint Organisations Data Initiative (JODI) – indicated that Saudi crude exports in August totaled 6.708m bbl/day.
Middle East tensions have also increased after Yemen’s Shiite Houthi rebels fired a ballistic missile at Riyadh airport on 4 November. Both Saudi Arabia and the UAE have blamed Iran for the attack. Iran has been accused of supplying missiles to the rebels, but Tehran has denied this.
Crude prices have been rising in recent months. ICE Brent crude prices are up more than 40% from lows hit in June this year. Price gains have been accelerating since late October amid indications of an erosion of the oversupply in the market which has been attributed to buoyant global demand and high levels of compliance to OPEC-led production cuts.
The production cut agreement, which has removed close to 1.8m bbl/day from the market, is presently due to end in March 2018 but is expected to be extended into 2018.
The widely followed US crude inventories, which hit a record high of over 535m barrels at the end of March 2017, had fallen by around 15% by the end of October, but were still at the high end of their five-year range.
Meanwhile, US crude production has been increasing as shale oil producers ramp up production following the rise in prices. The US’ Energy Information Administration (EIA) forecasts that total US crude oil production will average 9.2m bbl/day in 2017 and 9.9m bbl/day in 2018. If correct, the 2018 figure would be the highest annual average production in US history, exceeding the previous record of 9.6m bbl/day in 1970.
Photo source: Global Warming Images /REX/Shutterstock
Additional reporting by Nurluqman Suratman