Oil prices sank more than five percent on Tuesday, reversing some of the previous day’s gains as analysts predicted Saudi output would recover sooner than expected after weekend drone attacks.
At the same time, global stocks were in a holding pattern while investors awaited the US Federal Reserve’s latest decision on monetary policy due on Wednesday.
Economists widely expect the Fed to cut interest rates. In the space of several minutes during afternoon European trading, North Sea Brent crude oil for delivery in November tumbled from $67.75 to $65.00. It fell as low as $64.24, before recovering a little.
The market was already trading in negative territory after the previous day’s record gains fueled by attacks on Saudi facilities which wiped out half the kingdom’s crude output.
“The markets were once again wrong-footed by the Saudi news,” said Forex.com analyst Fawad Razaqzada in reaction to Tuesday’s price drop. “This time prices slumped on reports of sooner-than-expected return for oil production after the attacks.
“Although little details have emerged, speculators are evidently happy to sell now and ask questions later. And who would blame them after that big (price) gap?”
The spike in the oil price had stoked fears that costlier energy and geopolitical instability could weigh on an already slowing global economy, but a quick recovery in Saudi exports and a return to earlier price levels would alleviate those concerns. “Arguably Monday’s spike in oil was unsustainable, since oversupply concerns have been the much more dominant theme this year, but the sudden drop came earlier and quicker than expected,” said Chris Beauchamp, chief market analyst at online trading firm IG. —AFP