After hitting a 3 year high a little less than 2 weeks ago, the oil price has tumbled nearly 10 percent and things may be set to get worse as Saudi Arabia and Russia prepare to boost output.
The reasons behind the decision to cut output are unclear but a report out earlier today that the US has demanded Opec raise production by 1 million barrels per day could have something to do with it, and the decision may have come from the highest ranks of the US government.
It’s a well-known fact that the US consumer despises higher gasoline prices so US President Donald Trump may be the one behind the output demands to boost his party’s chances in the elections to be held later in the year.
Whether Opec agrees to the demands remains to be seen and if they do the oil price is likely to tumble a lot further.
"With the midterm elections coming up, obviously he wants lower gasoline prices, but at the same time, he's alienating himself from the rest of the world so is anybody, apart from Saudi Arabia, maybe going to listen, or comply or cooperate?" said PVM Oil Associates strategist Tamas Varga
"This seems to be an intervention in OPEC's supply policy. The US walks away from the Iran nuclear deal, which pushes up oil prices and less than a month later, demands producers raise production, this story is Trump-esque." He added.
On June the 22nd Opec, will have its next meeting and that’s when the market will find out whether there will be any production cuts and the chances of oil sustaining any type of rally until then are pretty slim.
The majority of hedge funds seem to have made up their mind on the outcome of the meeting as the amount of short positions in oil have now reached their highest level in 6 months.
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