- Saudi Arabia’s energy minister said the crude futures market is suffering from a lack of liquidity and high volatility.
- That’s leaving the market more disconnected from fundamentals, he told Bloomberg.
- OPEC+ could cut oil production to ease market dysfunction, he suggested.
OPEC+ may cut oil production as increased volatility and low liquidity roil global energy markets, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told Bloomberg.
In written responses to questions from Bloomberg, he warned that trends are undermining market pricing functions, making the costs of hedging and managing risks prohibitive.
Bin Salman added that the lack of liquidity is giving the market “a false sense of security” and leaving the market more disconnected from fundamentals, as spare capacity remains extremely tight and the risk of severe disruptions remains high.
“In a way, the market is in a state of schizophrenia and it’s creating a kind of yo-yo market and it’s sending the wrong signals at times when more visibility and clarity and well-functioning markets are needed more than ever to allow the market . participants to protect and efficiently manage the major risks and uncertainties they face,” he said.
Saudi Arabia is the world’s largest exporter of crude oil and the de facto leader of OPEC. At the onset of the COVID-19 pandemic in 2020, OPEC and its non-member partners agreed to cut oil production as demand fell.
But demand soon recovered and OPEC+ has been gradually restoring production for two years. Meanwhile, OPEC+ has fallen short of its production targets by millions of barrels each month.
“OPEC+ has the commitment, flexibility and tools within the existing mechanisms of the Declaration of Cooperation to deal with such challenges and provide guidance including production cuts at any time and in various forms as clearly and convincingly demonstrated repeated in 2020 and 2021,” bin Salman said.
Oil prices erased earlier losses in mixed trade on Monday. West Texas Intermediate fell 0.1% to $90.67 a barrel, while Brent crude rose less than 0.1% to $96.75.
