Saudi Arabia is in a difficult balancing act.
It needs oil prices to stay strong enough to fill its cash coffers but not so strong as to encourage its oil customers to seek alternative sources of energy, HSBC analyst Peter Hitchens writes in a commentary obtained by CNBC.
That implies an oil price of $90 a barrel for Brent crude, which would represent a decline of 21 percent from Thursday’s level of $114.
“Prices may continue to carry a regional risk premium for much of this year,” he says. “But we believe Saudi Arabia would prefer a longer-term oil price that meets its financial needs and constrains investment in non-OPEC projects or energy efficiency measures.”
Hitchens maintains that a $90 price “would satisfy both requirements.”
The Saudis will increase supply to send oil to that level, he says. But Hitchens doesn’t see the move to $90 coming immediately. “We expect it (Saudi Arabia) is wary of deflating what it sees as a speculative bubble too quickly,” Hitchens writes.
Other experts see lower prices too, at least for the short term, after a U.S. government report Thursday showed oil inventories climbed to a two-year high.
“Overall, the numbers are quite bearish,” Todd Horwitz, chief strategist at Adam Mesh Trading Group, told Bloomberg. “I am looking for prices to fall to $95 by next week.” He was referring to U.S. crude, which traded Thursday at $98.90.
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