Oil Soars To New 2023 High After Saudis, Russia Surprise With Extended Production Cut
Just days after we said that Saudi Aramco floating to sell up to $50 billion in new stock meant that oil is about to soar much higher...
Oil is going higher https://t.co/34CQ08p6uU
— zerohedge (@zerohedge) September 1, 2023
... moments ago oil exploded higher after first Saudi Arabia and moments later Russia surprised markets by announcing that the recently implemented production cuts would be extended through year-end, well beyond the 1 month that was widely expected by the market.
Just after 9am ET, Saudi Arabia said it would extend the voluntary cut of 1 million b/d of for another 3 months, from October until the end of December, well beyond the expectation of just 1 more month. Saudi press agency SPA notes that the voluntary cut decision will be reviewed monthly to consider deepening the cut or increasing production. The extension of cuts is meant to reinforce the precautionary efforts made by OPEC countries with the aim of supporting the stability of the oil market. The Saudi announcement came a shock to market as 20 of 25 traders and analysts surveyed by Bloomberg last week had predicted the additional cutback would be continued for just one additional month.
And then, literally seconds after the Saudi decision, Russian deputy PM Novak said Russia would also extend its reduction of oil exports until the end of the year, reducing its oil output by 300kb/d in voluntary cuts until December 2023.
Similar to the Saudis, Russia said that the decision to reduce oil production to be reviewed monthly to consider possibility of deepening reduction or increasing production depending on situation on the world market.
Defending the price of oil has come at a cost for the Saudis. The kingdom suffered the sharpest downgrade to economic growth projections by the International Monetary Fund because of the sales volumes it is losing. Yet this appears to be an acceptable price for the kingdom, which may need an oil price of almost $100 a barrel to cover the ambitious spending projects of Crown Prince Mohammed bin Salman, according to Bloomberg Economics.
“There is no sign that Saudi Arabia will shift away from its current price-over-volume strategy,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “Price over volume is the name of the game.”
Following this announcement Brent Nov’23 lifted from USD 88.50 to above $90 for the first time in 2023, while WTI Oct’23 rose from USD 85.55/bbl to USD 87.00/bbl, also the highest price of the year, and about to crush the Fed's hopes for a decline in headline inflation.
Bottom line: we now know that a year and a half later, the OPEC+/BRIC+ reaction to Biden's weaponized dollar is weaponized oil; may the least hopeless man win.
As for Biden, we wish him the best of luck refilling the SPR now that oil is about to hit $100 and rise above the price where the senile president sold most of the US strategic oil.
