Short Sellers Refuse to be Cowed

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author)

One of Rigzone’s regular market watchers takes a look at the new production cut from Saudi Arabia, recent oil price moves, market volatility, and more. Read on for more detail.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Barani Krishnan, Senior Commodities Analyst at uk.Investing.com: The biggest surprise of the week was the Saudis thinking that they had ‘surprised’ the market, again, with their latest production cut. Instead, it appeared the only ones surprised as the week concluded was the House of Saud in seeing that crude prices ended even lower than where they were before the so-called cut, which the kingdom’s energy minister had tried to cutely label the ‘Saudi lollipop’. Guess who the laugh was on.

Rigzone: What were some market surprises?

Krishnan: Notably, the biggest surprise was short sellers refusing to be cowed by one Saudi antic after another to try and get the market up, instead of waiting for natural summer demand to kick in … Sidelining traders from taking on more bullish bets were concerns about which way the Federal Reserve would go with rate hikes this week, despite bets that the central bank will likely opt to stay after 10 non-stop raises.

That said, the reason both WTI and Brent fell about two percent on the week, similar to the previous week, was the trade’s need to see summer demand kicking in a bigger way - something that had not yet happened.

Let’s examine the Saudi output maneuver itself. The kingdom is effectively pledging to remove some 2.5 million barrels per day from its production since October, versus 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 OPEC+ alliance decided to stay pat on production.

Reuters reported on Friday that the Saudis appeared to have caught those in OPEC+ unawares with their move. But almost all traders contacted by Investing,com seemed to have guessed the move, more because of Abdulaziz’s rabid obsession in trying to triumph against short sellers in the market with his so-called production surprises that were losing their impact with each attempt he made.

Here’s the actual market take on Abdulaziz bin Salman - he’s fast becoming the court jester of OPEC with his dares against speculators. Instead of behaving in a dignified way appropriate for the head of OPEC+, he’s acting like a street brawler. These production cuts would have so much more impact if done sparingly, or even quietly. Let the data speak for itself. You always have your ‘gotcha’ moment with the market then.

Rigzone: What developments/trends will you be on the lookout for next week?

Krishnan: More volatility until summer demand shows up.

To contact the author, email andreas.exarheas@rigzone.com