Saudi Arabia Likely Extend Oil Production Cuts, Wald Says

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Bloomberg 11/21 03:47 · 8795 Views

Saudi Arabia is likely to keep its voluntary oil production cut of 1 million barrels a day into the new year says Ellen Wald, senior fellow at the Atlantic Council. OPEC begins a meeting this weekend. She's on "Bloomberg Markets."

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  • 00:00 We seen a lot of volatility in the oil price everybody can't quite kind of figure out exactly what's behind that movement do you think the sis do you think I pay plus have got a good idea and how's it going to impact their thinking.
  • 00:12 Well I think that the a lot of the movement is due to a variety of factors I think the big drop that we saw last week was largely a financial one we saw you know there was a futures options exploration we saw a lot of short sellers moving to cover their positions take profits and so that DeFinitely explains the drop we're in a particular time right now when oil prices tend To Be lower so seasonally you know that's it's To Be expected but at the same time we're seeing softer economic data from China.
  • 00:43 You know this is ah a concern of a lot of a lot of traders we're also seeing some moves you know we're seeing very strong production from the United States despite you know anything else and then we'VE got the salud who are coming out there is saying hey all of these problems are due to specators you know are by by our calculation supply demand you know are pretty good we're looking for higher demand next year supply you know can cover it and and so the market is't really driving with what their.
  • 01:12 Saying the problem with putting together some kind of ah an opecque plus production cut for a meeting that's coming up you know this Saturday is that these things are complicated there are a lot of moving parts everyone's got to agree on this and I think it'd be hard press To Get to agree to a production cut or at least to a production cut that they planned to they plan to ad here to it's not unlikely that they could put something together we'VE seen these things come together at the last minute so you can't discount.
  • 01:42 That they might look at the market conditions and say hey we do need further production cuts going into you know the next year I don't think anything would start until twenty twenty four but that also brings up the question what about this million barrels a day that Saudi Arabia is just keeping off of the market you know it's it a voluntary production cut they're taking on and um you know how are they going to square that cut with with more OPEC plus cuts I think it's a it's a complicated situation and.
  • 02:12 The salud may decide that um ah a cut is'warran at this point they want to wait and see how the market maybe recovers from ah these these short sellers before they decide to actually try to impact supply.
  • 02:29 Okay yeah Ellen I was going to ask you about the suddi because as you say it's hard To Get consensus among the entirety of opecpl plus especially of Russia may have some problems with with pulling back on production even more so should we not expect to continu to see Saudi Arabia continuing to shoulder that burden kind of on its own it's a really good question and if you look at a rampco latest you know their their latest ah earnings their revenue was down and that is largely due to.
  • 02:59 The fact that they're selling less oil but it wasn't down all that much so I don't think there're in some kind of revenue crunch I don't think that n bs is breathing down their back To Get oil prices up necessarily so I think that what's probably likely is the sudis are going to continue that million barrela day cut but they would like to win that back at some point in twenty twenty four and so in order to do that they'VE either got To Get the rest of OPEC plus on board to cut more or they'VE got to say hey market conditions are do that.
  • 03:29 We think that there's room for a more supply so I would I'would be really be looking for is um for a continuation of this status quo with the idea that they're looking to see an improvement in demand Ellen do you think that the statement that ultimately comes out of this meeting will.
  • 03:47 Give any reference to what is happening in Gaza right now.
  • 03:52 This'a really good question um they do tend to stay away from politics especially the politics that don't impact them um I would I would assume that they are not going to make a big reference to that unless you're talking about the safety of ships carrying oil and I do think that um in relation to the latest news that the who these did hijack a ship that has high soonon Israeli shipping company in the red red sea at a particular chokepoint I think this is a concern.
  • 04:22 Not in that it impacts oil supplies but that such behavior can increase shipping costs and so a lot of opecque oil goes by sea opecque oil is impacted it goes through that area and so it's possible they may make some statement about insuring you know safe passage of oil but otherwise I think they are likely to stay away from any kind of political statement of that vein.
  • 04:49 And of course Ellen as we think about the conflict in the middle east the potential ramifications it's raised a lot of questions about potentially further us sans on iranie crude the primary buyer of which we know at this point is China which would maybe make those sanctions a bit harder to enforce on the subject of China though how crucial is it in what these players are trying to decide here because of the demand part of this equation is they're trying to figure out how best To Balance supply.
  • 05:16 I think China is really the crucial part To Global demand at this point because demand in Europe demand in the us is is basically a known quantity but where's demand going in China and that can depend on a bunch of things yes China's economic conditions do play role but remember this is a centrally run economy so the government can decide to continue purchasing large amounts of crude even if it's economy isn't demanding or consuming that much crude they can decide to just.
  • 05:46 Put it in storage they can decide to refine it and sell it around the region so there's a bit of a disconnect between what we think is happening economically in China and the amount of crude oil that China is going To Buy I do think that the people best situated to have their finger on the pulse of this are the saluddi because they have very exten operations with joined operations with Chinese companies petrochemicals refining they'VE got long termm pud oil contracts there so.
  • 06:16 My sense is that they would probably be best position to know how much crude oil China is going To Be buying in the next year.