By Myra P. Saefong and William Watts
Oil futures ended lower Monday, as traders eyed tensions between the U.S. and Saudi Arabia, ahead of a decision this week by the Organization of the Petroleum Exporting Countries and its allies that’s expected to see a loosening of production curbs.
Oil gave up earlier gains after Reuters reported that a White House spokeswoman said Monday that the U.S. reserves the right to sanction Saudi Crown Prince Mohammad bin Salman in the future if necessary, Phillip Streible, chief market strategist at Blue Line Futures, told MarketWatch.
”This added tensions to the relationship between the U.S. and Saudi Arabia ahead of a key OPEC decision,” said Streible. ”One way Saudi Arabia could retaliate is by boosting production and negatively impacting the U.S. oil producers.”
An intelligence report released by the Biden administration on Friday said Saudi Arabia’s crown prince likely approved an operation to kill or capture U.S.-based journalist Jamal Khashoggi in the Saudi consulate in Istanbul. The U.S. has sanctioned Saudi Arabia’s Intervention Force, called the ”Tiger Squad.” as well as a former Saudi intelligence officer for the involvement in Khashoggi’s murder, but has not sanctioned the prince .
Phil Flynn, senior market analyst at The Price Futures Group, however, believes that any retaliation by the Saudis would likely come in the form of an attempt to “squeeze the Biden economy,” by holding output back and sending prices higher, as U.S. shale production might not have the ability to immediately respond.
Sanctions on the Saudi prince would drive up oil prices, not down, as it would restrict U.S. supply, he said.
Instead, Flynn attributed oil’s losses Monday to concerns that OPEC+ will raise production, as Chinese oil demand is just starting to recover.
West Texas Intermediate crude for April delivery /zigman2/quotes/211629951/delayed CL.1 +0.62% fell 86 cents, or 1.4%, to settle at $60.64 a barrel on the New York Mercantile Exchange. May Brent crude , the global benchmark, shed 73 cents, or 1.1%, to $63.69 a barrel on ICE Futures Europe.
Prices had found support in earlier dealings amid prospects for the passage of a U.S. stimulus bill, which is expected to provide a boost to energy demand.
The U.S. House early Saturday passed the Biden administration’s $1.9 trillion package of COVID-19 relief spending. It now moves to the Senate, where it may be pared as Democrats work to push it through a chamber that’s divided 50-50, with Vice President Kamala Harris serving as the tiebreaking vote.
Oil has rallied so far this year, boosted by expectations for the rollout of COVID-19 vaccines and fiscal stimulus to lead to a strong pickup in demand, while efforts by OPEC+ to keep a lid on production have helped keep the market in balance, analysts said, a move enhanced by Saudi Arabia’s decision to cut an additional 1 million barrels a day in February and March.
“Clearly, given the strength we have seen in the market there will be growing pressure from within the group to ease cuts. While the market is expecting the group to increase output from April, the big unknown is by how much,” said Warren Patterson, head of commodities strategy at ING, in a note. OPEC+ is expected to make its decision on output Thursday.
“It is very likely that Saudi Arabia will bring back the 1 million barrels a day of supply that it is cutting voluntarily over February and March, then as for group cuts, under the deal the group can ease by 500,000 barrels per month,” said Patterson. “However given that the group did not ease anywhere near that in the first quarter of this year, there may be some members calling for more than 500,000 barrels a day of easing come April.”
Brent crude prices posted a gain of more than 18% for the month of February and the ”higher oil price environment, an increasingly promising demand picture by summer, and the recovering but still growing U.S. oil production outlook for 2021 should give OPEC+ the confidence to slightly increase supply,” said Louise Dickson, oil markets analyst at Rystad Energy, in Monday commentary.
However, she expects to see an increase of no more than 500,000 barrels per day. ”If the returning supply does not exceed 500,000 bpd though, the effect will be nearly neutral, as no trader can really expect OPEC+ to keep its cuts forever, she said.
Back on Nymex, prices for the April gasoline contract lost 0.4% to $1.9429 a gallon. April heating oil shed 1.3% to $1.8192 a gallon.
April natural gas settled at $2.777 per million British thermal units, up 0.2%.