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One of Rigzone’s regular market watchers takes a look at Saudi Arabia’s new production cut, recent oil price movements, market volatility and more. Read on for more details.
Rig zone: What were some market expectations that actually played out over the past week, and which expectations didn’t?
Barani Krishnan, Senior Commodity Analyst at uk.Investing.com: The biggest surprise of the week was that the Saudis thought they had “surprised” the market, again, with their latest production cut. Instead, it seemed the only ones surprised as the week concluded were the House of Saud to see crude oil prices end up even lower than before the so-called cut, which the kingdom’s energy minister had tried to cutely name the “Saudi Lollipop”. ‘. Guess whose laugh it was.
Rig zone: What were some market surprises?
Krishnan: Notably, the biggest surprise was that short sellers refused to be intimidated by one Saudi after another to try to boost the market, instead waiting for the natural summer demand to kick in. .Keeping traders from taking more bullish bets were worries about how far the Federal Reserve would go with rate hikes this week, despite bets that the central bank will likely opt to hold off after 10 straight hikes.
That said, the reason both WTI and Brent fell around two percent for the week, similar to the previous week, was the trade’s need to see that summer demand was increasing in a larger way, which had not yet happened.
Let’s examine the Saudi exit maneuver itself. The kingdom has effectively pledged to withdraw about 2.5 million barrels a day of its production since October, compared to a normal run of 11.5 million barrels. The Saudi move came after its 12 partners in OPEC, or the Organization of the Petroleum Exporting Countries, and 10 other allies, including Russia, in the OPEC+ alliance decided to remain in the production
Reuters reported on Friday that the Saudis appeared to have caught OPEC+ off guard with their move. But almost every trader contacted by Investing seemed to have guessed the move, more so because of Abdulaziz’s rabid obsession with trying to win against the market’s short sellers with his so-called production surprises that were losing impact with each attempt.
Here is Abdulaziz bin Salman’s real view of the market: he is fast becoming the court jester of OPEC with his antics against speculators. Instead of behaving in a dignified and appropriate manner for the head of OPEC+, he is acting like a street brawler. These production cuts would have much more impact if they were done sparingly, or even quietly. Let the data speak for itself. Then you always have your “I have” moment with the market.
Rig zone: What news/trends will you be waiting for next week?
Krishnan: More volatility until summer demand emerges.
To contact the author, please send an email andreas.exarcheas@rigzone.com
