Despite Saudi Arabia pumping record amounts of crude, the energy complex has spiked 6% higher tonight after two major headlines. First, Russia and other non-OPEC nations agreed to join the OPEC pledge to reduce production; and then, in what some are calling their "whatever it takes" moment, Saudi Arabia surprised the market by saying it will cut more than previously agreed.
Saudi Arabia will “cut substantially” below the target agreed last month with OPEC members, Energy Minister Khalid Al-Falih says.
Al-Falih’s comments follow a deal by non-OPEC countries to join forces with the group and trim output by 558k b/d next year, the first pact between the rivals in 15 years.
“This is a very powerful message that producers want to balance the market higher,” says Chris Weston, chief market strategist in Melbourne at IG Ltd. “As a statement of intent, this is about as bullish as it gets”
Oil spiked up to its highest since July 2015...
and perhaps most worrying for those inflation-watchers, is up 55% YoY...
"This is shock and awe by Saudi Arabia," said Amrita Sen, chief oil analyst at Energy Aspects Ltd. in London. "It shows the commitment of Riyadh to rebalance the market and should end concerns about OPEC delivering the deal."
The question is - what happens next? How long can the Saudis keep jaw-boning the market higher in true central bank-inspired 'forward guidance' before 'investors' get wise to them not actually cutting production?