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Crude oil prices could add some $6 per barrel following the announcement of a 1-million-bpd production cut by Saudi Arabia. That’s according to Goldman Sachs, which sees the effect of the cut as a range of between $1 to $6 per barrel depending on how long the cut is kept in place, as reported by ZeroHedge.
This is not a whole lot, meaning recessionary pressures continue to exert their influence over commodity traders but also over actual demand for oil.
Reuters’ market analyst John Kemp reported last week the U.S. manufacturing sector was officially in a recession, with seven consecutive months of contracting activity. This has led to a drop in the demand for diesel fuel and other middle distillates, he wrote, as well as in industrial electricity consumption.
Oil prices rose by about 1% after the start of trading this week, which was evidence that traders expected the announcement of additional supply cuts, as analysts had predicted.
"Hedge funds accelerated selling in US Energy amid price declines this week. This week’s notional net selling in US Energy was the largest in 10 weeks and ranks in the 97th percentile vs. the past five years," Goldman analysts wrote, as quoted by ZeroHedge, which predicted that the short-selling is about to reverse in light of the latest OPEC+ moves.
According to Rystad Energy’s senior vice president of oil market research, Jorge Leon, the Saudi oil output cut would only have a short-term effect on market prices unless it was extended beyond July, when it will enter into effect.
The additional cut, he told the AP, provides “a price floor because the Saudis can play with the voluntary cut as much as they like.”
"The Saudis have made good on their threats to speculators and they clearly want higher oil prices," Black Gold Investors founder Gary Ross and OPEC follower told Reuters.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.