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Investing.com - Crude oil prices have bounced at the start of this week on news of a trade deal between China and the U.S., but are still sharply lower this year, with BCA Research claiming that Saudi Arabia is deliberately driving oil lower.
At 05:30 ET (09:30 ET), Brent futures climbed 3% to $65.83 a barrel, and U.S. West Texas Intermediate crude futures rose 3.2% to $62.99 a barrel.
Both contracts rose by more than 4% last week on optimism over a potential de-escalation in U.S. President Donald Trump’s tariff agenda, but still trade around 12% lower year-to-date.
Concerns over potential demand destruction caused by a destructive trade war have weighed heavily this year, but also has the decision by the Organisation of Petroleum Exporting Countries and allies, known as OPEC+, to increase output.
OPEC+, lead by Saudi Arabia, recently announced another outsized oil production hike – tripling its planned June output increase to 411,000 barrels per day (b/d) for the second consecutive month.
“These changes to its production schedule ultimately shorten the timeline for the full return of the 2.2 mm b/d tranche of its production cuts to 14 months from the 18 months initially announced in December 2024,” said analysts at BCA Research, in a note dated May 12.
Under normal circumstances, OPEC production policy targets oil prices. It attempts to balance oil markets by curtailing output during times of demand weakness
However, geopolitical and oil market share considerations have temporarily replaced the crude price as OPEC+’s primary policy objective, BCA said, withSaudi Arabia hoping to reclaim some of its lost market share from both OPEC+ and non-OPEC+ producers.
That said, the timing of these production hikes suggests that geopolitical considerations are also at play, BCA added. Specifically, U.S.-Saudi relations.
President Trump has been explicit about his preference for low oil prices, and Saudi Arabia is hoping to secure greater military, defence, and civil nuclear cooperation.
By unwinding some support for oil prices ahead of Trump’s visit this week, Saudi Arabia may be hoping to demonstrate that it is willing to negotiate in good faith.
Even though Saudi Arabia has initiated a price war, it seems intent on avoiding a 2014/2015 or 2020 style collapse in prices.
The key question is whether the kingdom will succeed in effectively controlling crude prices, as this may prove tough, especially if demand conditions deteriorate.