Don't Fight The Saudis (Part 2)
Oil speculators are learning the lesson we learned back in 2018, don't fight the Saudis. When the Saudis make a verbal commitment as strong as the one they made in June, speculators should've listened right away and covered. Instead, they pushed their chances, increased short positions, and fought against reality anyway.
Like the write-up we wrote back on May 15th titled, "Oil 101 - Don't Fight the Saudis." The market is finally starting to catch on, but following the voluntary cut extension announcement today, the Saudis were quite blunt in the messaging.
In the announcement, SPA went on to say that the ~1 million b/d cut may be "extended, or extended and deepened."
If that messaging isn't obvious that there is a certain price level the Saudis will want to achieve, I don't know what else to tell you. And looking at Saudi's July crude export volume, it appears to me that their actions are meeting their words.
For the oil market, even though we are seeing a manufacturing-led slowdown, refining margins remain very elevated, and the physical market conditions continue to tighten. And this should happen given that oil, at the end of the day, is a physical commodity.
The Saudi announcement combined with the Russia announcement that the crude export cut will also be extended signals to me that the two powerhouses are dead on about pushing oil prices higher.