Oil prices hit 2-year high following Saudi anti-corruption measures
Oil has hit its highest levels for two years as markets tightened amid an anti-corruption purge by Saudi Arabia’s crown prince.
Brent Futures Reach Two-year High
Brent futures LCOc1 prices were as high as $62.90 per barrel in the last week, the highest level achieved since July 2015 and exceeding 40% above the lows seen in June this year. In response, U.S. West Texas Intermediate (WTI) crude CLc1 reached over $56 per barrel, also its highest level since July 2015 and one-third higher than its previous 2017 lows.
Anti-corruption Moves Make Markets Uneasy
Crown Prince Mohammed bin Salman has moved to tackle high-level corruption through the arrest of ministers, prominent business investors, and even members of the Saudi royal family and security forces. According to a statement issued by the prince, the purge is not expected to change the oil policy of Saudi Arabia, despite recent reforms.
Reforms For 2018
Crown Prince Mohammed bin Salman appears to be committed to the existing OPEC agreement and to forging ahead with the sale of Aramco.
The prince’s list of reforms includes a plan to detail parts of the state-owned oil company, Saudi Aramco next year. With this in mind, a higher oil price is perceived as being beneficial to market capitalisation for the future listed company. However, traders have reported signs of a tightening market.
Reduced US Oil Activity
In recent weeks, US oil companies have cut eight rigs, reducing the total to 729, representing the biggest reduction since May of 2016. The decline in activity is largely blamed on the decision by OPEC and a non-OPEC group fronted by Russia to withhold approximately 1.8 million barrels per day in production in an attempt to tighten markets. Although the agreement is only due to run until March next year, there is growing momentum to extend the deal.
With this in mind, analysts expect oil prices to remain on the increase for the latter part of this year and into the beginning of next, until the oil-producing countries’ strategy for 2018 becomes clearer.
Source: [Reuters]