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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Fake News Or Fundamentals: What’s Driving Oil Prices?

  • Multiple OPEC+ officials have spoken out about the negative impact of “fake news” on oil markets, suggesting it has driven a disconnect between fundamentals prices.
  • Standard Chartered believes these comments about unsubstantiated news stories driving volatility in markets are primarily an appeal from OPEC ministers for higher prices.
  • The current 30-day realized Brent crude volatility is 44%, only 4 percentage points higher than this time last year, suggesting volatility isn’t abnormally high.

Following the Saudi Energy Minister’s comments about the “disconnect” between oil fundamentals and oil prices, more OPEC officials have spoken out about what they suggest is fake news that is misleading the markets.

In its latest report, Standard Chartered describes OPEC ministerial concerns about oil price volatility as “primarily straightforward appeals for higher prices”.

At the same time, Standard Chartered’s bull-bear index for U.S. oil data has fallen week-on-week to -43.2 due to disappointing demand. 

On August 22nd, Saudi Energy Minister Prince Abdul Aziz bin Salman told Bloomberg that “extreme volatility” was “undermining the market’s essential function of efficient price discovery”. That, in turn, made it impossible for physical users to manage the costs of hedging or navigate the inherent risk.

“This vicious circle is amplified by the flow of unsubstantiated stories about demand destruction, recurring news about the return of large volumes of supply, and ambiguity and uncertainty about the potential impacts of price caps, embargoes, and sanctions,” he said. 

Several days later, on August 25th, Libyan Oil Minister Mohamed Oun stated that the recent heightened volatility in oil markets was “largely the result of misleading news and stories about global oil demand and supplies”. Fake news, Oun alleged, was sending the “wrong signals to all market participants”. 

OPEC members Iraq, Algeria, Bahrain, Kuwait, Equatorial Guinea, and Venezuela also followed suit with similar statements, Bloomberg reported

Standard Chartered notes that “when oil ministers talk of volatility sometimes they just mean falling prices”. However, the report also notes that the current 30-day realized Brent crude volatility is only at 44% - a figure that is “not particularly high”, and in fact, only 4 percentage points higher year-on-year. 

From Standard Chartered’s perspective, the case for weakening demand is not necessarily misleading, as OPEC ministers have claimed. A case in point is U.S. gasoline demand, which represents 9% of global oil demand. U.S. gasoline demand, according to Standard Chartered, has weakened for five consecutive months. 

Standard Chartered’s U.S. oil data bull-bear index has been bearish in 10 of the past 12 weeks, leading to the assessment that “fundamentals have clearly been far weaker in Q2 and Q3 than they were in Q1”, warranting the conclusion that fundamentals - not fake news - have been the key drivers of prices. 

By Charles Kennedy for Oilprice.com

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