Saudi Energy Minister Warns Oil Bears To “Watch Out”
Bearish speculators were warned Tuesday morning by Saudi Arabia‘s top energy official to “watch out,” a little more than one week before a planned Organization of the Petroleum Producing Countries and its allies (OPEC+) meeting to decide the future of oil policy.
“Speculators, like in any market are there to stay, I keep advising them that they will be ouching, they did ouch in April I don’t have to show my cards I’m not a poker player but I would just tell them to watch out,” Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said at the Qatar Economic Forum hosted by Bloomberg.
Bloomberg data shows that trading positions of hedge funds and other non-commercial traders are at the most bearish levels since at least 2011 across a combination of all major oil contracts. Brent prices have tumbled nearly 39% in about a year from $120 a barrel to around $76 this month.
Still, “it’s pretty remarkable to see this type of positioning,” Greg Sharenow, who manages a portfolio focused on energy and commodities at PIMCO, told Bloomberg in an interview. Bloomberg reporter Alaric Nightingale said traders are waking up to the big short in oil markets after the top Saudi energy minister’s comments earlier today.
This makes more sense. After an initially muted reaction, oil futures gained as much a dollar from where they were when Abdullah bin Salman, Saudi Arabia’s oil minister, warned speculators to “watch out.” The most obvious reading of that statement is that the kingdom could cut oil production, or even orchestrate a wider reduction in output, thereby boosting prices and hurting those who bet against crude. Oil’s move up is in contrast with the anaemic performance from equities, suggesting a break between the two asset classes.
Even with Riyadh and its partners slashing crude production last month to stabilize prices, bearish speculators continue to swarm oil markets amid increasing fears that a US recession is nearing. On Monday, Standard Chartered told clients in a note that OPEC+ might slash production based primarily on soaring bearish oil bets over the last month. “We think the latest build-up in short positions significantly increases the probability of further production cuts when OPEC+ meets on 4 June,” said Standard Chartered.
The note highlighted that Saudi Arabia has consistently expressed strong opposition towards short sellers in the oil market, such as the comments made earlier this morning. Today’s comments show that $75 might be the “floor” the cartel is determined to defend.
Bloomberg noted, “While several delegates have said there’s no need for further action now as curbs already in place will help tighten global markets, Prince Abdulaziz has been known for orchestrating surprise interventions.”