Very sharp decline in oil prices, now slowly recovering

Extraordinary volatility in crude oil prices, with Brent crude losing $26 intraday. It touched $105 after rising to $139 earlier this week. But things are moving really fast, as it is already back near $115 this morning. 

Yesterday’s decline was initially part of a wider correction in the financial markets (see Daily Eco) but was also fueled by statements from the UAE Ambassador to the US that his country was in favour of a bigger increase in OPEC production and would encourage other member countries to make a decision in this direction. A tweet from another UAE official overnight has since reaffirmed his country’s commitment to following the discipline of the OPEC+ group of which Russia is a member. There is therefore some confusion over the UAE’s position, as the Biden administration attempts to re-engage with Saudi Arabia’s leader MBS, while continuing to talk to Venezuelan authorities and blaming the oil sector in the US for not increasing domestic production, a trend confirmed by the latest weekly EIA figures released yesterday. 

These figures showed a further sharp decline in crude and product stocks (more details here). The situation is most critical for diesel stocks, which is where the interruption of Russian oil imports will have the greatest impact.