Earlier this week, the price of Brent for January settlement had raced above $64 a barrel as arrests of senior officials in Saudi Arabia raised questions about instability there.
It has now slipped 53c to $63.74 a barrel on the ICE Futures Europe exchange as the market lingered at overbought levels, and Opec said US shale output will soar to 7.5 million barrels a day in 2021, 56% than forecast a year earlier. Strength in the dollar also acted as a downward force on oil because it weighs on investor interest in commodities priced in the currency.
“There’s no doubt that we got a little bit overbought,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said.
“The dollar is higher, so that’s acting as a bit of a headwind to prices as well,” he said. Investors remain focused on tensions in Saudi Arabia, as “the market pays more attention to geopolitical risk,” said Mr Flynn.
Oil advanced by over 5% last month on signs global supplies are tightening and the Organisation of Petroleum Exporting Countries and its allies may prolong their supply-reduction deal past March.
“One out of nine barrels in the world is produced out of Saudi Arabia, so whatever happens in Saudi Arabia is really a revolution or turmoil for the world of oil,” Paolo Scaroni, vice-chairman of NM Rothschild and former chief executive of Italian oil giant Eni, said.
“With this additional uncertainty of what happened in Saudi Arabia over the weekend, prices spiked up,” he said.
Meanwhile, Opec has said a larger-than-expected boom in electric vehicle sales could cause global oil demand to peak and flatten out in the late 2030s. If a quarter of the world’s cars have batteries, global oil demand would reach a plateau of about 109 million barrels a day during the second half of the 2030s, it said in its annual World Oil Outlook.
The group’s main forecast is still for consumption to increase for decades to come as the electric car fleet expands at half that pace. Yet the inclusion of the faster-growth scenario shows it is starting to take the threat more seriously.
“It is highly unlikely that electric vehicles will penetrate the passenger car segment with this strength in less than 24 years.
“Nevertheless, several countries have publicly stated their intention to achieve an even higher share of electric vehicles in new sales,” according to the report.