It was worth the wait, just a hunch that the announcement yesterday of a cut of 500,000 b/d making a new total of 1.7m b/d was not all the rabbits from the hat. Russian Minister Novak had announced the cut but the KSA had the final say this afternoon. Prince Abdulaziz this afternoon announced that ‘we will make extra voluntary reduction of 400,000 b/d’ making a total of 2.1m b/d off the market.
Most members of the enlarged group have agreed that there was a risk of oversupply in Q1 2020 but yesterday’s cut was thought to be about all that was needed or to be honest what they could manage until the deal gets renegotiated next March. This extra 400,000 b/d cut which would take the KSA down to levels from five years ago, should give some support to the oil price and encourage more confidence as we go through the first quarter. In addition and surely as an aside only it might even push the value of Saudi Aramco through the magic $2 trillion mark…
Now the bears will still out as distribution of the cut (clearly Saudi will bear the brunt) has yet to be seen but there is little doubt that some of the scribblers such as those at UBS are looking just a smidgen exposed, now all we need is a cold snap…oil rose around a dollar on the news. As Abdulaziz said ‘the analysts will have to believe us’ and I will comment more on Monday to see how it all settles down but if it does happen it is making a big point with a very crude but effective tool.