Why Did Oil Prices Just Jump By 27 Percent In 3 Days?
Oil prices have posted their strongest rally in years, jumping an astounding 27 percent in the last three trading days of August.
While much of the recent price movement defies reason and is enormously magnified by speculativemovements by traders to take and cover their bets on oil, still, there were a series of rumors, events, and fresh data that helped contribute to the spike.
For example, on August 31, the oil markets woke up to the news that Russian President Vladimir Putin will meet his counterpart from Venezuela to discuss “possible mutual steps” to stabilize oil prices. The meeting will take place in China on September 3. Venezuelan President Nicolas Maduro has alreadycalled for an emergency meeting of OPEC, a call that has fallen on deaf ears, at least in the most important country of Saudi Arabia.
It is still highly unlikely, but the one country that might be able to change the minds of Saudi oil officials is Russia. Again, even if Russia promised to cut back oil production to boost prices (which it has not shown a willingness to do), Saudi Arabia has little trust in Moscow to follow through on those promises. Similar understandings to cooperate in the past have fallen apart, making coordinated action unlikely.
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Moreover, it is not at all clear that Russia’s best move is to cut back on production. Sure, it wants higher oil prices, but selling less oil will arguably offset price gains. And the depreciation of the ruble has cushioned the blow of low oil prices – Gazprom just reported a 29 percent gain in net profit for the second quarter compared to a year earlier, largely due to a weaker ruble. So, Russia is eager for oil prices to rebound, but the Kremlin is not as desperate as Venezuela.
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