Oil Rises Again but Remains Below Recent Highs as Biden Considers Meeting with Saudi Officials

By Barani Krishnan

Crude oil prices saw a rebound on Thursday following a two-day decline, although they remained significantly lower than recent peaks. Reports suggest that President Joe Biden may be considering a meeting with Saudi Arabia’s crown prince, which could potentially lead to discussions about increasing oil supply in response to U.S. requests.

West Texas Intermediate (WTI) crude, traded in New York, rose by $2.62, or 2.4%, closing at $112.21 per barrel. Prior to this recovery, WTI had experienced a decline of 4% over two days, after a notable increase of 14.5% across the previous four sessions that had pushed it to a seven-week high of $114.90.

Brent crude, which is traded in London, also experienced an increase, rising by $2.93, or 2.7%, to reach $112.04 per barrel. Similar to WTI, Brent had lost 4.5% over two trading days after a 12% increase prior, hitting a one-month high of $114.79.

The recent uptick in oil prices can be attributed to optimism surrounding the easing of COVID-19 restrictions in Shanghai, which may enhance fuel demand in China, the world’s largest oil importer. Additionally, strong consumption and inventory data released by the U.S. government on Wednesday supported the market, according to traders.

However, both WTI and Brent saw intraday lows of $103.25 and $105.72, respectively. This was partly due to ongoing uncertainty about whether European nations would reach a consensus to ban Russian oil, a move tied to their disapproval of Russia’s actions in Ukraine.

The emergence of discussions for a potential in-person meeting between Biden and Crown Prince Mohammed bin Salman in Riyadh, as reported, adds another dimension to the situation. Historically, the U.S. and Saudi Arabia have maintained a strong partnership, focusing on energy security and regional stability.

However, the relationship between Biden and the crown prince has been strained, particularly after Biden referred to Salman as a "pariah" following the 2018 killing of journalist Jamal Khashoggi. Earlier this year, the crown prince reportedly avoided Biden’s calls, and he is known to react strongly against any references to the Khashoggi case.

Should their relationship improve, it could influence the already supply-constrained oil market, particularly if Saudi Arabia agrees to respond to longstanding U.S. requests for an increase in oil production. John Kilduff, a partner at an energy hedge fund, noted that while it is premature to speculate on the outcome, any agreement could lead to a price drop of about $10 per barrel, assuming other conditions remain constant.

For over a year, Saudi Arabia has led the OPEC+ coalition of 23 oil-exporting nations in limiting production to support prices. This strategy has maintained production levels significantly below market demand, which has increased due to sanctions against Russia.

In the United States, a critical shortage of gasoline and diesel follows the closure and downsizing of several refineries during the pandemic. Remaining refineries are operating at limited capacity and show little interest in expanding operations, fearing that potential investments may not yield sufficient returns.

Research indicates that the U.S. has lost over 1 million barrels per day in refining capacity due to the pandemic, while global capacity has also decreased significantly. Given the lack of plans for expanding refining capabilities, the supply constraints are expected to worsen.

Saudi Arabia’s Energy Minister downplayed any linkage between soaring fuel prices in the U.S. and OPEC+ production decisions, attributing the issues largely to refining capacity limitations. Similarly, Bahrain’s Oil Minister echoed this sentiment, highlighting that even if crude production were to increase, it would not translate to market demand, as there would be insufficient refining infrastructure to accommodate additional output.