Sentiments matter in crude markets. And when they change, the entire landscape gets altered and volatility takes central stage. This is exactly what has been happening to the crude markets over the last couple of weeks.

As the Organisation of Petroleum Exporting Countries (Opec) kept talking the markets — up and down — sentiments kept fluctuating, markets remained volatile.

‘Would Opec’ or ‘would it not’ remained the most debated issue. And with the probability of each option going up or down, the market changed its direction. Fundamentals in the meantime were pushed to the sidelines while the Opec and its next moves became the centre of attention.

And the Opec enjoyed this added focus, playing to both the sides of the gallery. To some it appeared, the producers’ were back in the driver’s seat.

Indeed the organisation has been under pressure, overt and covert, from Washington — to cool the overheating crude markets. Politically and strategically, Opec is neither in a position, nor prepared to earn Washington’s wrath. It had to at least appear, complying with the wishes of Washington.

A number of fundamentals were also impacting the oil markets. The Iran imbroglio, the worsening Venezuelan output, the growing US output — all weighed on the markets, yet eyes remained focused on Opec’s next move(s) on the global energy chessboard.

As far as Moscow was concerned, President Putin was straight enough to indicate that a price of $60 per bbl was fair to him. “We’re not interested in an endless rise in the price of energy and oil,”

Putin told reporters at the International Economic Forum in St. Petersburg, adding that Russia and Opec didn’t plan to stick to existing output cuts. “If you asked me what a fair price is, I would say we’re perfectly happy with $60 a barrel.”

Saudi Arabia, the Opec kingpin, has not been that forthright with its goal and objectives. At a point in time in the past weeks, signals from Riyadh indicated it was targeting a price of $80 per bbl or even more. But with President Trump showing his annoyance at the overheating crude markets, Riyadh had to back off. Signals from Riyadh hinted they were working at ways to cool down the markets. Initial reports indicated that an output increase of 1 million barrels per day (bpd) was under discussion, amongst the major stakeholders.

But a measure of hesitation also seems palpable in the Saudi steps. After all, in order to balance its budget, meet the aspirations of its youth and obtain the ‘right’ valuation of Aramco IPO, Riyadh was in dire need of the additional petrodollars. Wash­ing­­ton, but didn’t condone it.

In the backdrop, Riyadh seemed uncertain of the route it should adopt. Early last week, when it was reported that Russia and Saudi Arabia were considering increasing oil production to ‘ease supply concerns and market anxiety’, markets were seen plummeting, ending last Monday at their lowest since May 8. In fact, oil in New York dropped by about 5 per cent since the hints of easing of output curbs was dropped. This went against Saudi objectives.

But by mid last week, signals from Riyadh became mixed. After initially signalling they might agree to increase the output, they appeared backtracking, indicating that output would be increased only by the end of the year and until then the current output management regime would stay in place.

A Gulf source familiar with Saudi thinking told Reuters, that Saudi Arabia, other Opec states and their non-Opec ally Russia aimed to stick to a global pact on cutting oil supplies until the end of 2018. The source though emphasised that the producers’ were ready to make gradual adjustments to offset any supply shortage. Markets reacted — firming up in the meantime.

By the end of the week, things started to cool down again, as signals from Riyadh apparently confused the markets.

All this was talking the price — up and down. And Opec is apt at it.

Rising US production also helped cool the markets. US crude oil production jumped 215,000 bpd to 10.47 million bpd in March, the highest on record, the US Energy Information Administration (EIA) said in a monthly report on Thursday.

US crude inventories also raised by 1 million barrels in the week to May 25 to 434.9 million barrels, according to data from industry group the American Petroleum Institute, although analysts had expected a decrease of 525,000 barrels.

But for a host of reasons, Opec cannot just keep talking but would rather, need to be seen as taking concrete steps. Until this moment markets are confused and hence volatile. But that would need to change. Washington wants it. Eyes thus remain glued to the next move of Opec and indeed Russia.

Published in Dawn, June 3rd, 2018