Whilst fully acknowledging the headwinds that prevent oil from crawling convincingly higher, last week can be characterized as powerfully bullish. To begin with, the escalation of the conflicts between Israel and Palestine has reached new heights.
The impact of yesterday’s report by the Financial Times on Saudi Arabia preparing to unwind 2.2 mbpd of voluntary cuts must not be exaggerated. It must be taken at face value. It was the confirmation of a pre-agreed deal. It is the timing that was curious as the change in Saudi/OPEC+ strategy comes as Brent is trading sub-$80. Adding around 180,000 bpd per month for 12 months starting in December will loosen the oil balance and probably lead to global stock builds in 2025.
Given the economic and fundamental backdrop, yesterday’s sharp sell-off was somewhat perplexing. Central banks started to lower interest rates, which was a confident sign that recession had been avoided. China’s tacit admission of failing to revive its economy and the resultant introduction of monetary stimulus was greeted with an audible sigh of relief.
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