Oil Prices Take a Hit After Reports of Saudi Production Increase
Reports of OPEC+ Production Hike
A month ago, Reuters reported that OPEC+ was planning to increase production in October, according to anonymous sources. This news resulted in a decrease in oil prices, with WTI dropping below $70. However, a few days later, Reuters reported the opposite - that the production cuts planned for October were likely to be delayed.
Saudi Arabia Ready to Abandon $100 a Barrel Price Target
Overnight, The Financial Times reported that Saudi Arabia is prepared to abandon its unofficial price target of $100 a barrel for crude oil as it plans to increase output. This indicates that the kingdom is resigned to a period of lower oil prices. Officials in the kingdom are committed to increasing production as planned on December 1, even if it leads to a prolonged period of lower prices. The kingdom has decided it is not willing to continue ceding market share to other producers and believes it has enough alternative funding options to weather a period of lower prices.
A Major Change for Saudi Arabia
This shift in thinking represents a significant change for Saudi Arabia, which has led other Opec+ members in repeatedly cutting output since November 2022 in an attempt to maintain high prices. However, Saudi Arabia has been frustrated that several members of the cartel, including Iraq and Kazakhstan, have been partially ignoring the cuts by pumping more than their respective quotas.
China's Promise to Stimulate the Economy
Interestingly, this FT headline was published just an hour after China's Xi promised to stimulate the world economy (which would have increased oil prices dramatically). As highlighted by Goldman's Rich Provorotsky, ceasefire headlines in Lebanon and some progress in Libya have hurt spot oil prices, offsetting the positive China announcements.
Saudi's Abandonment of $100 Oil Target
The focus should be on the FT story on Saudi Arabia saying they have abandoned their $100 oil target. If not openly denied by Saudi, this is a significant development for the oil market and it is expected to see energy stocks continue their de-rating.
Russia Denies OPEC+ Plans to Increase Production
While the Saudis have not issued a denial, Russia has denied any OPEC+ plans to increase production. Deputy PM Alexander Novak told Reuters that "there have been no changes to the plans."
Bottom Line
The fluctuation of oil prices due to the potential increase in production by Saudi Arabia and the abandonment of the $100 a barrel price target is a significant development in the oil market. It raises questions about the future of oil prices and the strategies of major oil-producing countries. What are your thoughts on this development? Do you think the oil market will stabilize or continue to fluctuate? Share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
