Bloomberg Market Specialists Dennis Ting and Vincent Quek contributed to this article. The original version appeared first on the Bloomberg Terminal.
Saudi Arabia’s resolve to drive up crude prices is coming under spotlight as short sellers continue to amass positions betting on oil to slump.
The kingdom’s decision to make a supply cut in July comes as short-sellers, who fled after shock OPEC+ cutbacks in April, are making a comeback. While China’s economic recovery is faltering, the Saudi output cut may still tighten the oil market significantly, according to BloombergNEF and the U.S. Energy Information Administration.
The upper-right chart shows OPEC output has decreased since late 2022, but still remains elevated. The chart at bottom left shows Saudi Arabia’s spare production capacity, at 2.04 million barrels a day in May.
Saudi Energy Minister Prince Abdulaziz bin Salman said he “will do whatever is necessary to bring stability to this market,” after Saudi Arabia’s extra 1 million barrel-a-day oil supply cut. That implies its spare capacity will rise above 3 million barrels. Hedge funds have taken the opposite tack by adding to oil short positions, which benefit if prices drop.
The previous cuts, however, have already begun to tighten the crude market in May and the latest Saudi reduction will deepen a supply deficit in the second half, Wayne Tan, a BloombergNEF oil analyst, said.
Bloomberg
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