Crude Oil Bulls Seeing Few Clouds on the Horizon

The International Monetary Fund yesterday downgraded its global growth forecast to the lowest in ten years while Vladimir Putin raised doubts about Russia’s willingness to support a prolonged period of production cuts. But these developments are unlikely to hold any sway over the market as long Saudi Arabia continues to back the production cut deal as aggressively as it has done so far. With a very successful Aramco bond auction in the bag they will undoubtedly feel less inclined to act on renewed political pressure from the US.

Following the murder of dissident journalist Jamal Khashoggi last year, the Saudis, in need of political friends abroad ,jumped when the US asked them to increase production ahead of the introduction of sanctions against Iran. What followed was the biggest slump in oil prices in years after the US surprisingly granted waivers to eight buyers of Iranian crude. As a result of being blindsided by the US and because of their need to support the price of crude oil, Saudi Arabia made a 180 degree turn: During a four-month period from December to March the kingdom’s production slumped from a record to a four-year low, well below the level they had agreed as part of the Opec+ deal to cut production.