Wednesday, June 28, 2023

"Who has the Oil Price Advantage: the Saudi Prince or the Speculators?"

From Neue Zürcher Zeitung's, June 20:

Oil bears, beware. Prices are still determined by the physical market (not the futures market) and by the supply side (not the demand side). And China might well surprise on the upside.

Deutsche Version

Oil traders seem to be ignoring Saudi Arabia’s oil production cuts. Oil prices haven’t been surging in reaction to Riyadh’s recent output tightening. For months now, OPEC+, under Riyadh’s leadership, has been maintaining upside pressure on prices with successive announcements of supply reduction.

At the beginning of June, the Gulf monarchy pledged another cut for July, bringing its production to the lowest level in a decade. What has been the impact of those cuts? After the June announcement, Brent futures briefly jumped before falling back to exactly where they were a week earlier. After the decision in April to cut production, prices were back where they were after less than a month. Crude oil prices (Brent) have been steadily going down for a year now.

Many negative factors
One key element is that the market seems to believe that these bullish cuts will be largely offset by bigger bearish forces. Indeed, the fear of slowing Chinese demand is now rising, despite mixed macro signals from Beijing. The high Chinese oil inventories are another bearish factor, although they are going down as we speak. In addition, the fact that Russia has seen its oil shipments soar this year, despite Western sanctions, tilts the risk towards higher supplies while global demand is slowing. Inside OPEC+, Russia has diverging interests: in the face of Western sanctions, it has had to grant China and India considerable price discounts on its oil.

These factors combined explain why Saudi Arabia is now a bit lonely in its fight for oil price increases.... 


Previously from this author, Myret Zaki:
"Are Financial Attacks the Modern Economic Wars?"

And as noted in our March 26 post "ECB warns that shadow banking could trigger next financial crisis":

....Raising the question: How exposed to the shadow bankers was Credit Suisse? And who else has big exposure?

On the first question, Myret Zaki, who has looked at shadow banking a few times, seems to think the answer is "A fair amount.":

L’arbre Credit Suisse cache la forêt du «shadow banking»

And a few years ago: 

And a few days ago:

The Cost of Ignoring the Shadow Banking System