Oil prices plunges after Saudi Arabia promises production restoration

September 24 12:02 2019
Oil prices plunges after Saudi Arabia promises production restoration

The prices of oil dropped sharply Tuesday after Monday’s surge that sent shock waves across the globe. Saudi Aramco suspended oil production after drone attacks that caused a major stir in the global market. However, US oil futures settled down 5.7% at $59.24 a barrel, representing the worst one-day drop for US oil since the 1st of August, according to Refinitiv.

The prices of fell initially fell after a report from Reuters indicated that Saudi Arabian oil production would return to normal before the end of September. According to Saudi Energy Minister, Abdulaziz bin Salman, the country’s oil exports would not fall in September, as the kingdom aims to use her to ensure stable exports.

Investors took the minister’s statement as a positive sign and after shooting up more than 14%, oil prices went south with Brent crude settling down 6.5% at $64.55. The development can also be attributed to the US stocks finishing slightly higher, eking out gains just before the market closed.

There have been a variety of explanations for the change in expectations, be it stronger data last week, improved risk appetite, trade war optimism and even higher inflation potential following the oil price spike,” said Craig Erlam, senior market analyst at Oanda.

Whatever the reason, it would be an interesting move from the Fed to hold at the meeting and one that would almost certainly draw the ire of the US President, although they must be used to that by now,” Eriam added.

On the other side of the curve, investors have also expressed their concerns about a sudden spike in the overnight lending rate. The borrowing rate banks charge each other for short-term loans also jumped overnight, an indication of low market liquidity.

An economic data indicating better- than-expected figures has also added to investors’ concerns that the Fed Reserve may hold off on cutting rates. Industrial production was stronger than expected in August, even with the US manufacturing sector shrinking for the first time in August.

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