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Oil Falls Again on Saudi Capacity Surge, Trump Troubles

Published 09/27/2019, 01:01 AM
Updated 09/27/2019, 01:33 AM
© Reuters.
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By Barani Krishnan

Investing.com - The Saudi crisis almost feels like distant memory. Crude prices fell for a third day in a row on Thursday after Riyadh said it was back up and fully running, triggering more clawback of the risk premium factored into a barrel.

Wall Street’s slide on fresh developments related to a formal impeachment inquiry into President Donald Trump also curbed risk appetite. After days of pressure by Democrats, the White House released a reconstructed transcript of a call between the president and his Ukrainian counterpart, where Trump is heard asking a “favor” before discussing a corruption probe in the East European nation that links to his political rival former VP Joe Biden.

U.S. West Texas Intermediate crude was down 50 cents, or nearly 1%, at $55.99 per barrel by 12:55 PM ET (16:55 GMT)

U.K. Brent oil slid 23 cents, or 0.4%, to $62.16.

Oil jumped as much as $8 a barrel, or nearly 15%, right after the Saudi attack, which briefly disrupted about 5% of daily global crude production.

The rally came as industry experts and veterans predicted it would take many weeks, even months, for the kingdom to regain full output at its damaged Abqaiq crude processing plant, which turned out 5.7 million bpd before the attack. There was also fears that Riyadh and the United States might launch a military offensive against Iran, which they accused of carrying out the attack but has denied the charge.

The speculation has come to nought, with Saudi Arabia saying on Wednesday it now had a higher oil production capacity, at more than 11 million bpd. The kingdom and the U.S. have also softened their stance on any response to the attack.

“Some doubt still exists about the quality constitution of the current Saudi production capacity, but that is not enough to scare the market,” said Olivier Jakob of Zug, Switzerland-based oil risk consultancy PetroMatrix.

Riyadh’s lightning pace in restoring production after the attack, ostensibly to safeguard the IPO prospects of its state oil company Aramco, has taken a toll on the risk pricing in oil. Crude prices retrenched within days nearly 8% of their initial gains and more than 4% in the past three days. Wednesday’s slide was also triggered by a surprise in the weekly reading for U.S. crude stockpiles .

At Thursday noon, WTI was about $1.50 above where it stood before the attack, while Brent showed a premium of just under $2.

“In 2008, on the fear of Iran, WTI was trading at 145 $/bbl in a contango structure,” PetroMatrix’s Jakob said, referring to the market situation where the front-month contract traded at a discount to forward contracts.

“In 2019, on the fear of Iran, WTI is trading at 55 $/bbl in a backwardated structure,” he said, referring to the opposite situation to contango.

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