Saudi Arabia, the world’s largest oil exporter, is mired in its biggest international crisis since King Salman took the throne in 2015, but one would hardly know it by looking at oil markets.
The market remains unconvinced that the murder of journalist and U.S. resident Jamal Khashoggi will cause a conflict that shrinks Saudi supply. At the same time, analysts say traders are taking profits after this month’s oil price rally, while investors sell crude as the broader market sheds risky assets.
Oil prices have tumbled from nearly four-year highs just three weeks ago, despite rising U.S.-Saudi tension over the killing.
U.S. crude fell towards $66 a barrel on Tuesday, hitting a two-month low and dropping more than $10 from its high on Oct. 3. Brent crude, the benchmark for international oil prices, dropped to a more than six-week low, tumbling towards $76, also more than $10 below its own four-year high.
Saudi Arabia acknowledged on Friday that several of its agents killed Khashoggi in the Saudi consulate in Istanbul, Turkey. The incident has sparked calls for sanctions against Saudi Arabia, a series of embarrassing intelligence leaks by Turkish authorities that undermined the Saudis’ story and threats of retaliation from the kingdom.
The scandal initially raised concerns that Saudi Arabia would refuse to hike oil output as planned. The Trump administration is largely depending on the Saudis to fill the gap left by the loss of Iranian oil exports, which are subject to U.S. sanctions beginning on Nov. 4.
However, Saudi Energy Minister Khalid al Falih reassured markets over the past two days that Saudi Arabia intends to increase production as previously announced. He said there is no intention to hold back oil exports, after the nation’s press agency released a statement last week threatening to retaliate against any foreign government that seeks to punish the country for Khashoggi’s killing.
On Tuesday, Falih said OPEC producers are essentially producing as much as they can to make sure the market doesn’t swing into undersupply. The Saudis frequently influence oil prices by making announcements about future production and export levels.