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Updated: Oil surrenders more momentum but with Pompeo GCC visit, investors must remain diligent

Jameel Ahmad, Global Head of Currency Strategy & Market Research at FXTM, comments on oil surrendering more momentum. With Pompeo visiting Abu Dhabi and Jeddah, investors must remain diligent

Oil has dropped 13% since the astonishing 20% climb in prices earlier this week The main catalyst behind the losses on Tuesday were reports that Saudi Arabia will be able to resume production output close to levels expected prior to the attacks “Saudi Aramco has so far shown great crisis management skills and great resilience, keeping operations ongoing in the attacks’ aftermath" - Samuel Ciszuk, founding partner of consultants ELS Analysis

Main story by Jameel Ahmad, FXTM, with additional quotes cited by Mark Anthony Karam

UPDATE: Speaking to Bloomberg TV, Saudi Arabia’s Finance Minister Mohammed Al-Jadaan said that attacks that slashed half of Saudi Arabia’s oil output had “zero” impact on the kingdom’s revenue and won’t affect economic growth.

“We are back online, so the interruption in terms of the economy, in terms of revenue, is zero,” he said. The kingdom has used oil reserves to fill the gap during the past few days, he added.

Original story follows

What goes up must come down. That famous saying is especially playing true when discussing the valuation of Oil this week, with the commodity having declined a whopping 13% since the astonishing 20% climb in prices that made headlines around the world when financial markets resumed trading for the new week.

The main catalyst behind the losses on Tuesday were reports that Saudi Arabia will be able to resume production output close to levels expected prior to the attacks on Aramco production fields last weekend. While initially met by astonishing surprise from investors who expected the return to capacity would take months, this was later supported by Saudi Energy Minister Prince Abdulaziz bin Salman confirmation during a news conference in Jeddah that Saudi’s Oil output will be fully back online by the end of September.

“Saudi Aramco has so far shown great crisis management skills and great resilience, keeping operations ongoing in the attacks’ aftermath and quickly mobilizing recovery and repair crews,” said Samuel Ciszuk, founding partner of consultants ELS Analysis in Stockholm, as reported by Yahoo! Finance.

Read: S&P: Abqaiq strike spotlights risks to oil spare capacity

More optimism that production output will return to levels before the drone and missile attacks on Saudi Arabia before the end of September should encourage further declines in Oil by the end of the week. It wouldn’t surprise me if Brent Crude prices edge closer to $60 from current valuation near $64 at the time of writing, while WTI Crude can fall as low as $56 from where it trades currently marginally below $59.

The next focus for investors monitoring the geopolitical environment is the expected press conference from a Saudi Defence Ministry spokesman later on Wednesday. Reports have circulated that the press conference will show evidence that Iran was involved in the Aramco attacks, while United States Secretary of State Mike Pompeo is also traveling to Abu Dhabi and Jeddah.

If evidence of Iran’s suspected involvement in the attacks on Saudi Arabia is provided and the US Secretary of State warns of repercussions, fears regarding a surge in political tensions in the region will escalate once again. While we have already seen in the past few days how sensitive Oil prices can behave to geopolitical developments, if an escalation does flare up in the region, volatility can spread into other asset classes.

Oil market “facing challenging times”

“The oil market is facing challenging times. Recent attacks on oil facilities in Saudi Arabia have painfully demonstrated the risks to oil supply, which is why short-term price spikes are possible at any time,” said Commerzbank analyst Carsten Fritsch, as reported by CNBC.

Still, fundamental supply and demand balances are deteriorating, Fritsch added, forecasting Brent oil prices of $60 a barrel next year.

“Demand growth is weakening, oil supply outside OPEC is rising significantly and OPEC+’s production discipline has faded recently,” he said.

Read: Who are the biggest winners and losers from surging oil prices?