Saudis Surprise Oil Market With Big Unilateral Output Cut
Comment of the Day

January 05 2021

Commentary by Eoin Treacy

Saudis Surprise Oil Market With Big Unilateral Output Cut

This article from Bloomberg may be of interest to subscribers. Here is a section:

The de-facto leaders of the group have different priorities, with Saudi Arabia preferring to sacrifice volume in exchange for higher prices, while Russia wants to boost production before rival suppliers can fill the gap.

Russian Deputy Prime Minister Alexander Novak welcomed Saudi Arabia’s move, telling reporters that “it’s a great New Year present for the whole oil industry.” It’s an especially sweet gift for U.S. shale drillers, said RBC analyst Helima Croft.

The agreement means the global market will get far less supply than traders had been expecting prior to this week. The OPEC+ meeting opened on Monday with a proposal from Russia for a 500,000 barrel a day output hike next month, which was opposed by most other members. The alliance had been scheduled to discuss similar-sized increases in March and April, but that plan has been superseded by the latest accord.

Eoin Treacy's view

This agreement is the necessary catalyst to inject a sense of urgency into the oil markets. Many shares have been priced as if demand for oil is going to evaporate in the short term. The reality is that even if the most bullish EV estimates are realised oil will remain the primary transportation fuel for at least another decade.

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