Saudi Arabia and Russia rush to rescue the market, 2 weeks early

By Barani Krishnan — With another two weeks to go until the OPEC+ meeting, the Saudis and Russians have decided not to sit idly by and let the market crash continue.

In an urgent response to a Wall Street Journal article on Monday, Saudi Arabian Energy Minister Abdulaziz bin Salman denied that the alliance of 23 oil-producing countries under his charge was working on a 500,000-barrel production increase. per day to announce it at the OPEC+ meeting on December 4. .

Had the WSJ report been true, it would have been a swing toward the 2 million barrels per day cut that OPEC+ had announced for November. It would have been a small increase in barrels, but a huge increase in goodwill, doing wonders for US-Saudi relations but, unfortunately, further hitting already free-falling crude prices.

Both New York-traded West Texas Intermediate crude, or WTI, the benchmark for U.S. crude, and London Brent, the global oil indicator, hit their lowest level since the start of the year in early trading on Monday. , in part according to the WSJ story.

But the report was not true, Saudi Arabian Energy Minister Abdulaziz said in a statement carried by the state news agency SPA.

“It is well known that OPEC+ does not discuss any decision before the meeting,” Abdulaziz said, referring to the December 4 meeting.

He added: “The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023 and if further action is needed by reducing production to balance supply and demand, we will always be ready to intervene.”

And just on cue, Russian Deputy Prime Minister Alexander Novak, Abdulaziz’s closest ally outside the Gulf in OPEC+, came up with his own responses to the upcoming December 5 decision by Western nations on a possible import ban. and a price cap for Russian oil.

Novak reiterated Russia’s position not to sell its oil to nations that would participate in the price cap, a plan devised by the West to limit the funding Moscow could put into its war against Ukraine. The Russian deputy prime minister also said something else that helped turn crude prices positive again for the day: In the event of an oil price cap, Russia could also cut oil production.

“The lower offer will be the result of a price cap on Russian oil,” Novak added.

WTI, which hit a session low of $75.30 on Monday, marking its lowest since January, recouped most of its losses by midday, responding to comments from Abdulaziz and Novak. The benchmark US crude index settled at $79.73 a barrel, down 35 cents, or 0.4%.

Sunil Kumar Dixit, chief technical strategist at, said oversold conditions could push WTI back towards the 100-week SMA of $81.30. “But it has to come in and close above $80. Otherwise, there is always a danger that it could move towards the lows of $72.50 and $71.”

The global benchmark Brent crude index sank to $82.36 earlier, its lowest level since February, before recovering to settle at $87.45, down 17 cents, or 0.2%, on the day.

“The coordinated response we got from the Saudis and the Russians in denying the WSJ report and putting a cap on oil selling off is interesting,” said John Kilduff, a founding partner of New York energy hedge fund Again Capital. “The OPEC+ meeting is another two weeks away and they have decided that there is a lot at risk on the price front if they keep quiet until then.”

Crude prices also briefly entered a “contango” mode on Friday, a market structure that defines weakness, for the first time since 2021. Under this dynamic, the previous month’s oil contract in the futures market trades with a discount for the next month. . While the difference itself may be small, it forces buyers who want to hold a position in oil at contract expiration to pay more to switch to a new, prior-month contract.

With so much negativity on crude right now, all eyes are on what the OPEC+ alliance of oil producers will do when it meets on December 4.

OPEC+, the alliance that unites OPEC, or the 13-member Organization of the Petroleum Exporting Countries led by Saudi Arabia, with 10 other oil producers led by Russia, agreed at its previous meeting to cut production by 2 million barrels per day to boost Brent. and US crude prices that had fallen sharply from March highs.

On the heels of that OPEC+ decision, Brent went from a low of around $82 a barrel to nearly $100 in a matter of days (it had hit nearly $140 in early March). WTI rose from $76 to $96 (WTI was just over $130 in March). Both benchmarks have lost all of those gains in the last two weeks, raising questions about whether OPEC+ will make even more cuts to prop up the market again.

Abdulaziz’s comments on Monday signaled the likelihood of more cuts, especially as he said the alliance will be “ready to step in” if “further action is needed to reduce production to balance supply and demand.”

OPEC+’s 2 million barrel cut has not gone down well with the United States.

Relations between Saudi Arabia and the United States have hit a low point over disagreements over oil production this year, though the WSJ reported Monday that US officials were looking forward to the Dec. 4 OPEC+ meeting with some hope.

The talks about a production increase came after the Biden administration told a federal court judge that Saudi Crown Prince Mohammed bin Salman should have sovereign immunity from a US federal lawsuit related to the brutal murder of the Saudi journalist. Jamal Khashoggi. The immunity decision amounted to a concession to Mohammed, bolstering his position as de facto ruler of the kingdom after the Biden administration tried to isolate him for months.

The WSJ acknowledged in its report that it would be an unusual time for OPEC+ to consider a production increase, as global oil prices have fallen more than 10% since the first week of November due to a series of Covid headlines in China. .

A rise in coronavirus cases in China has invited new lockdown measures in some of the country’s biggest cities, raising concerns about slowing demand for crude oil in the world’s biggest oil importer. The country is currently struggling with its worst COVID outbreak since April, which saw several cities go into lockdown. A report earlier this month said that several Chinese refiners asked Saudi Aramco (TADAWUL:2222) to supply lower amounts of oil in December, which could signal a slowdown in oil shipments to the country. China also increased its export quotas for refined fuel, which could indicate a surplus in crude oil reserves due to lower demand.

Still, some OPEC+ delegates apparently told the WSJ that a production surge could come in December in response to expectations that oil consumption tends to rise in the winter. Oil demand is expected to increase by 1.69 million barrels per day to 101.3 million barrels per day in the first quarter of next year, compared with the average level in 2022.

Saudi energy minister Abdulaziz has also said in the past that the kingdom would supply oil to “everyone who needs it.”

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