According to Rapidan Energy Group, Saudi Arabia may be closer to declaring its mission accomplished in the oil market than traders realize.
Riyadh has pushed Brent crude toward $100 a barrel by cutting output just as global demand for the fuel hit record levels. According to Rapidan, this may be enough for the kingdom to start reviving production again, rather than risk another price increase that would hurt the economy.
Traders are underestimating “that the Saudis are going to put their foot down sooner rather than later,” Bob McNally, chairman of the consultancy and a former White House official, told Bloomberg Television on Thursday. “They don’t want to deliberately overtighten the market, because if you get an increase, then you get a collapse in demand and you get a bankruptcy.”
Global oil markets are “compressing a lot,” especially for fuels such as diesel and heating oil as peak winter consumption approaches, McNally said. With a particularly fragile economic context, this poses dangers for central banks such as the Federal Reserve, he added.
“The real sensible way to bring prices closer together is for Saudi Arabia and OPEC+ to say, ‘We’ve made our point, we’ve scared off the speculative shorts,'” McNally said. “We’re not there yet, but we’re getting closer “.
Riyadh has pledged to maintain its further supply cut of 1 million barrels a day until the end of the year, in concert with export curbs from OPEC+ partner Russia. But he will also review the strategy every month and has said he might adjust production more or less.
The Organization of the Petroleum Exporting Countries and its partners will hold a market monitoring session next week, followed by a full ministerial meeting at the end of November to set production policy for 2024.
