Talking Points:
- Saudi Arabia has expressed readiness to use spare production capacity to maintain market balance.
- There are also unconfirmed reports of the US using its strategic reserves to send oil lower.
- The Canadian Dollar fell following the news, bucking a recent move higher versus the US Dollar.
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US markets were jolted Tuesday morning as Crude Oil made a large downturn after touching $75 a barrel, a price not seen in four years. The move lower is attributable to Saudi Arabia’s willingness to increase demand at the request of US President Donald Trump. President Trump has long been critical of OPEC and rising oil prices, and the agreement from Saudi Arabia has a broad impact on global oil supply while other nations, like Venezuela, cope with falling production.
The agreement from Saudi Arabia is surprising as in recent months they have agreed with Russia and other OPEC+ members to keep production relatively low. In contrast, the nation has expressed they are profitable with oil near $40 a barrel. This may signal they are looking to increase profit through a larger share of the market at lower costs.
As Crude pressed lower, the US Dollar was pushing a high in its own right versus the Canadian Dollar. The development comes at a time when the Loonie was just beginning to see a break from strong manufacturing figures and potentially looking to mount a rally versus its southern neighbor. At present, lower crude prices will only serve to hamper Canadian exports and have a knock-on effect on GDP when the nation has a central bank rate decision coming up next week.
US Crude Oil Price Chart: 1-minute Timeframe (Intraday July 3, 2018) (Chart 1)
USD/CAD: 1-minute Timeframe (Intraday July 3, 2018) (Chart 2)
— Written by Peter Hanks, DailyFX Research
