By Barani Krishnan

Investing.com — Crude prices returned to the green on Thursday after a two-day slide but remained well below their recent highs amid reports that President Joe Biden might meet Saudi Arabia’s crown prince after all in a diplomatic turnaround that could ostensibly compel the key oil producer to consider US requests for more supply.

With about 30 minutes to Thursday’s settlement, New York-traded , or WTI, was up $2.65, or 2.5%, to $109.69 a barrel. 

After rising by a total 14.5% over four sessions, the U.S. crude benchmark fell 4% in two days. This allowed it to reach a seven-week peak of $114.90.

The London-traded index was 2.6% higher at $111.89 per barrel, up $2.78.  After rising by 12% over four trading sessions, the global crude benchmark fell 4.5% to $111.89 per barrel in its previous days. It reached a record of $114.79 in one month.

Thursday’s rebound in oil came on the back of hopes that planned easing of Covid restrictions in Shanghai could improve fuel demand in China, the world’s largest importer of oil.

According to traders, bullish stockpiles and consumption data for U.S. crude oil were also released Wednesday by the government. This helped market support.

WTI dropped to $103.25 an hour earlier, while Brent reached a session low of $105.72.

One reason for that was the continued uncertainty on whether Europe would reach consensus as a bloc to ban Russian oil to validate the EU disapproval over Moscow’s war in the Ukraine.

CNN reported that US officials had been working with the Saudi Crown Prince Mohammed bin Salman to organize a meeting at Riyadh. This was likely in preparation for Biden’s next scheduled overseas visit.

On the face of it, as long-term allies on everything from energy security to peace on the Arabian peninsula, the U.S. and Saudi leadership should have no trouble meeting at any time, as exemplified by Biden’s predecessor Donald Trump whom some say had “too cosy” a relationship with Salman. 

The trouble though is the caustic relationship between Biden and the crown prince, whom the president once called a “pariah”. That came after the 2018 slaying of Jamal Khashoggi, the Saudi-born journalist and US resident whom the CIA says was executed on Salman’s order due to his criticism of the crown prince. 

Salman (often referred as MbS or his initials), declined to receive calls from Biden earlier in the year. According to media reports, the Saudi crown Prince, who is known for his temperamental outbursts and rage, usually explodes when it’s attempted to link him with the Khashoggi murder. It is not known whether Biden will be able to leave the murdered Saudi-native-turned-U.S.-resident out of any communications with the crown prince.

A positive change in the relationship between these men could alter the dynamic of the supply-strained market for oil if Saudi Arabia (which has the capacity to produce more) decides that it will meet the U.S. demand for more barrels. 

“It’s too early to put any form of speculation on where this thing could go, with the two sides having to agree first on a meeting; then the timing of when exactly that would be; how the whole thing would come off and whether the Saudis are willing to put a cap on price hikes by releasing more barrels to the market,” said John Kilduff, partner at New York energy hedge fund Again Capital. 

“But as traders, we always look to front-run any development on the market, and this, if it comes to fruition, could easily mean about $10 lower on the flat price of crude, with all other things being equal,” added Kilduff, who has a forecast of $95 lows for WTI in the coming weeks on signs that U.S. production was rising after all to meet current supply tightness and the projected peak summer demand for oil. 

Saudi Arabia is the head of the 23-state, global oil exporters alliance OPEC+. For over a year, it has made sure that countries within the group supply less crude oil than the market requires to ensure the best prices per barrel.

The original 13 countries that were led by the Riyadh, Organization of the Petroleum Exporting Countries (OPEC+), and 10 additional countries steered mainly by Russia have kept to a minimum monthly increase of just over 430,000 barrels. That falls clearly short of demand that is at least 3 million barrels higher, as a direct consequence of the West’s sanctions on Russia that have de-legitimized an equal number of barrels that used to be on the market.

The United States is currently experiencing an extreme shortage of gasoline and diesel due to the closing and downsizing many refineries that were affected by the coronavirus pandemic. 

Refineries that have stayed in the business are now providing only what they can — or, more accurately, what they desire — without putting any of the money into expanding existing capacity or acquiring the idled plants that can be reopened to provide some measurable relief to consumers. Refineries have one motivation to continue doing that — record profits that could be diminished by expansion. Another factor is the slow turnaround time required for new refineries to make a profit.

Bloomberg estimates that more than 1.0 million barrels per day of U.S. oil refining capacity — or about 5% overall — has shut since the Covid-19 outbreak initially decimated demand for oil in 2020. Outside of the United States, capacity has shrunk by 2.13 million additional barrels a day, energy consultancy Turner, Mason & Co says. Bottom line: The squeeze will only get worse with no plans for expansion.

Saudi Energy Minister Abdulaziz bin Salman last week downplayed any connection between the record high fuel prices in the United States with OPEC+’s actions, saying the lack of refineries was to blame. 

“There is no refining capacity commensurate with the current demand and the expectation of the demand in the summer,” the energy minister and half-brother to the Saudi crown prince said. 

Bahrain’s Oil Minister Sheikh Mohammed Bin Khalifa Bin Ahmed made a similar observation as his Saudi counterpart. “There’s no new [refining] capacity coming,” Sheikh Mohammed said. “Even if you produce more crude, there isn’t demand for it, there aren’t any more refineries.”