“Oil Surges as Saudis Eye Deeper Cuts While Non-OPEC Joins Deal” Bloomberg, 12/12/16

Article Link: https://www.bloomberg.com/news/articles/2016-12-11/oil-surges-as-saudis-eye-deeper-cuts-while-non-opec-joins-deal

Our Summary: This important news report by Bloomberg begins with the rallying of the oil price, the most since July 2015 due to announced cuts in oil production by Saudi. Oil futures rose on US and UK markets. Saudi Energy Minister announced that the oil cuts would “substantially to be below” previously agreed on November 30th. A deal with non-OPEC producers to collaborate in reducing output will result in reduction by 558,000 a day next year, a first in 15 years.

Oil futures in US have risen 20% since OPEC announced reduced output on 30th November. The report continues by mentioning how Saudi the largest OPEC producer is taking back control of the market. The plan covers 60% of supplies but excludes “US, China, Canada and Brazil.” On the US market WTI oil rose $3.01 to $54.51 and $3.56 to $57.89 for Brent on UK markets.

This action on the Oil market is likely “to push market into deficit”. Oil and gas producers gained in Asia. The report also reveals that the Saudi Energy Minister and his Russian counterpart had been working on the agreement for a year in secret. The report highlights how Russia and Saudi are need of higher oil prices to bolster their economies that driven by energy exports. US shale producers have jumped to the opportunity with an dramatic increase in oil rigs. The aim of such move by Saudi is to recalibrate oil inventory rather raise prices and initiate a “sharp production response”.

Our Verdict: This latest move by Saudi reiterates the growing influence it is having on world politics and the global economy. Especially when considering the collaboration with Russia and the shifting relationship with the US, a longstanding ally of Saudi Arabia, its clear to see the moving patterns in global politics. The growing calls of western nations in implicating Saudi in “proxy wars” in the Middle-east, referring to leaked Clinton emails and comments last week by UK Foreign Minister Boris Johnson; Further signifies this as a possible counter-move by the Saudi government to show discontent and political independence from western nations. The cut in oil production may harm the US the least due to impetus provided by shale producers drilling again. However its possible effect on the already slowing global economy will be more significant.

Key Word: Collaboration


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