The Opec trade is back, and Saudi Arabia is in the driver’s seat.
Just before the de facto Opec leader doubled down on its plan to drain the oil glut, propelling Brent crude prices beyond US$60 a barrel for the first time since 2015, hedge funds were almost as bullish on the global benchmark as they’ve ever been. Short-sellers retreated to levels last seen in February, when Opec production cuts were fuelling an oil price surge.
Saudi crown prince Mohammed bin Salman said “of course” he wanted to prolong Opec’s output-reduction deal into 2018. That was after Russia’s president Vladimir Putin said an extension should run through at least the end of next year. With the leaders of the world’s two biggest oil-exporting countries on board, an agreement is all but certain at a meeting in Vienna next month.
“We have evidence that people are positioned long into Opec in November. The consensus trade on the street is that they’ll extend cuts,” said Chris Kettenmann, the chief energy strategist at Macro Risk Advisors, in New York. Prince Salman showing support has led to more seriousness around a potential extension of cuts and “it makes it very hard to be aggressively short”.
The fundamentals are looking brighter, too. US crude inventories are near the lowest levels since January 2016. Saudi Arabia’s oil minister, Khalid Al Falih, said oil demand is more resilient than people think, and Statoil’s chief executive Eldar Saetre said the oil market is “definitely balancing”.