Oil prices extend decline as Saudi promises speedy restoration of production output

Oil prices extended decline to Wednesday as Saudi Arabia said it would quickly restore full production following last weekend’s attacks on its facilities.

Although tension in the Middle East remained elevated, Saudi Arabia said it would provide evidence on Wednesday linking Iran to the attacks. The United States had already said it believed the attacks against the world’s top oil exporter originated in southwestern Iran, but Iran has denied involvement in the strikes.

Brent crude oil futures LCOc1 were down 75 cents, or 1.16%, at $63.80 a barrel by 1330 GMT. U.S. West Texas Intermediate (WTI) crude CLc1 futures were down $1.15, or 1.94%, at $58.19.

Oil prices had fallen 6% on Tuesday after the Saudi energy minister said the kingdom had restored oil supplies to customers at their level before the attacks by drawing from its inventories.

“As much as the Saudis have downplayed the extent of the latest outages, we should not be lulled into a false sense of security,” said Stephen Brennock, of London-based oil brokerage PVM.

“Tensions in the region are still running high and the specter of a further escalation is hanging over the oil market.”

The International Energy Agency said it currently did not see a need for the release of emergency oil stocks.

Saudi’s energy minister Abdulaziz bin Salman had said on Tuesday that Saudi Arabia’s average oil production in September and October would be 9.89 million barrels per day (bpd) and that this month’s oil supply commitments to customers would be met fully.

Production capacity would reach 11 million bpd by the end of September and 12 million bpd by the end of November, the kingdom’s production capacity before the attacks, he said.

Relations between the United States and Iran have deteriorated since U.S. President Donald Trump pulled out of the Iran nuclear accord last year and reimposed sanctions on its oil exports.

“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.

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.

The Organization of the Petroleum Exporting Countries and a number of other oil producers including Russia agreed last year to cut output by 1.2 million bpd to reduce global stocks and prop up prices.