Oil Prices Slide After FT Report On Saudi Production, Russia Denies OPEC+ Shift

Is there something about $70 WTI that ‘the powers that be’ are afraid of?

Source: Bloomberg

A month ago, Reuters reported, citing the usual anonymous sources, that OPEC+ was set to proceed with a production hike in October. That immediately sent oil prices lower, slamming WTI back below $70. A few days later, Reuters reported the exact opposite – that any October production cuts were likely to be delayed (again citing anonymous sources).

A month later and overnight we see The FT join the anonymous-source-citing oil-manipulation game as they report, according to people familiar with the country’s thinking, Saudi Arabia is ready to abandon its unofficial price target of $100 a barrel for crude as it prepares to increase output, in a sign that the kingdom is resigned to a period of lower oil prices.

The FT goes on to report that officials in the kingdom are committed to bringing back that production as planned on December 1, even if it leads to a prolonged period of lower prices, the people said…

…the kingdom has decided it is not willing to continue ceding market share to other producers, the people said. It also believes it has enough alternative funding options to weather a period of lower prices, such as tapping foreign exchange reserves or issuing sovereign debt, they added…

…

The shift in thinking represents a major change of tack for Saudi Arabia, which has led other Opec+ members in repeatedly cutting output since November 2022 in an attempt to maintain high prices.

Indeed it would be it it turns out to be true.

The FT ends with some conjecture too…

A key frustration for Saudi Arabia has been that several members of the cartel, including Iraq and Kazakhstan, have been partially ignoring the cuts by pumping more than their respective quotas.

Opec secretary-general Haitham Al Ghais visited both countries in August and extracted commitments that they would adjust their future production plans to compensate for past oversupply.

But Saudi Arabia remains concerned about compliance and could decide to unwind its own cuts faster than planned if either country does not toe the line, one of the people added.

So is this FT report signaling from Saudis to other OPEC+ members that time’s up for cheating… or just more anonymous source manipulation?

Notably, this FT headline hit just an hour after China’s Xi promised to save the world with stimulus (which would have sent oil prices dramatically higher).

“It is necessary to look at the current economic situation comprehensively, objectively and calmly,” the readout said.

“Face up to difficulties, strengthen confidence, and effectively enhance the sense of responsibility and urgency to do a good job in economic work.”

As Goldman’s Rich Provorotsky highlights, ceasefire headlines in Lebanon and some progress in Libya have hurt spot oil prices, offsetting the positive China announcements today.

…the real focus should be on the FT story on Saudi saying they have abandoned their $100 oil target and “officials in the kingdom are committed to bringing back that production as planned on December 1, even if it leads to a prolonged period of lower prices, the people said.”

If not openly denied by Saudi this is a very big deal for the oil market and I fully expect to see energy stocks to continue their de-rating.

While the Saudis have not issued a denial (yet), Russia has denied any OPEC+ plans to increase production as Deputy PM (and former energy minister) Alexander Novak told Reuters that “there have been no changes to the plans.“