Saudis, Russians rush to the rescue of the market, 2 weeks early

By Barani Krishnan – The OPEC+ meeting is another two weeks away, but the Saudis and Russians have decided not to sit back and let the market slump continue.

In an urgent response to a Wall Street Journal story on Monday, Saudi Energy Minister Abdulaziz bin Salman denied that the 23-nation oil alliance under his leadership was working on a 500,000 b/d increase in output from announce at the December 4 OPEC+ meeting.

Had the WSJ report been true, it would have been a pivot to the 2 million b/d cut that OPEC+ had announced for November. It would have been a small increase in barrels, but a huge one in goodwill, doing wonders for Saudi-US relations but, unfortunately, further pounding already free-falling crude prices.

Both New York-traded West Texas Intermediate crude, or WTI, the benchmark for US crude, and London Brent, the global gauge for oil, hit year-to-date lows in early trading on Monday, based in part on the WSJ story.

But the report was not true, Saudi Energy Minister Abdulaziz said in a statement released by state news agency SPA.

“It is known that OPEC+ does not discuss any decision before the meeting,” Abdulaziz said, referring to the December 4 meeting.

He added: “The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023 and if further steps need to be taken by reducing production to balance supply and demand we always remain ready to intervene.”

And just as well timed, Russian Deputy Prime Minister Alexander Novak, Abdulaziz’s closest non-Gulf ally in OPEC+, came with his responses to the impending Dec. 5 decision by Western nations on a potential ban of imports and caps for Russian oil.

Novak reiterated Russia’s stance not to sell its oil to nations that would participate in the price cap, a plan devised by the West to limit the funding Moscow could put into its war against Ukraine. The Russian deputy prime minister also said something else that helped crude oil prices turn positive again for the day: in the event of an oil price cap, Russia could also cut oil production.

“The lower supply will be the result of a price cap on Russian oil,” Novak added.

WTI, which hit a session low of $75.30 on Monday, the lowest since January, recouped most of its losses by noon, responding to remarks from Abdulaziz and Novak. Benchmark U.S. crude oil came in at $79.73 a barrel, down 35 cents, 0.4%.

Sunil Kumar Dixit, chief technical strategist at, said that oversold conditions could push WTI towards the 100-week simple moving average of $81.30. “But it has to come in and close above $80. Otherwise, there is always danger if it moves towards lows of $72.50 and $71.”

Global benchmark Brent crude fell to $82.36 earlier, its lowest since February, before recovering to stabilize at $87.45, down 17 cents, or 0.2%, on the day.

“It’s interesting the coordinated response we’ve received from the Saudis and the Russians in denying the WSJ report and putting a cap on the oil sell-off,” said John Kilduff, founding partner of New York-based energy hedge fund Again Capital. “The OPEC+ meeting is another two weeks away and they have decided that there is too much risk on the price front if they remain silent until then.”

Crude oil prices also briefly entered a “contango” mode on Friday – a market structure that defines weakness – for the first time since 2021. Based on this dynamic, the first month oil contract in the futures market is trading with a discount compared to the next month. While the difference itself might be small, it forces buyers who want to hold a position in oil at the time the contract expires to pay more to switch to a new earlier contract.

With so much negativity in crude oil now, all eyes are on what the OPEC+ oil producers alliance will do when it meets on Dec. 4.

OPEC+ – the alliance linking OPEC, or the 13-member Saudi-led Organization of the Petroleum Exporting Countries, with 10 other Russian-led oil producers – agreed at its previous meeting to cut production by 2 million barrels a day to boost Brent and US crude prices which had dropped sharply from their March highs.

Immediately after the OPEC+ decision, Brent crude dropped from a low of around $82 a barrel to nearly $100 in just a few days (it had hit nearly $140 in early March). WTI rose from $76 to $96 (WTI was just over $130 in March). Both benchmarks have lost all of those gains over the past two weeks, raising questions as to whether OPEC+ will opt for further cuts to support the market again.

Abdulaziz’s remarks on Monday signaled the likelihood of further cuts, especially when he said the alliance would be “ready to step in” if there is a need to “take further steps by reducing production to balance supply and demand.”

The same 2 million barrel cut by OPEC+ has not gone down well with the US.

Relations between Saudi Arabia and the United States have hit a low point amid disagreements over oil production this year, though the WSJ reported on Monday that US officials had viewed the Dec. 4 OPEC+ meeting with some hope.

The talk of increased output emerged after the Biden administration told a federal court judge that Saudi Crown Prince Mohammed bin Salman should have sovereign immunity from a US federal lawsuit over the brutal killing of Saudi journalist Jamal Khashoggi. The immunity decision amounted to a concession to Mohammed, bolstering his position as the kingdom’s de facto ruler after the Biden administration had tried for months to isolate him.

The WSJ acknowledged in its report that it would be an unusual time for OPEC+ to consider an increase in production, with global oil prices down more than 10% from the same first week in November on a surge in headlines Covid from China.

Rising coronavirus cases in China have prompted new lockdown measures in some of the country’s biggest cities, sparking concerns about slowing demand for crude at the world’s largest oil importer. The country is currently struggling with the worst COVID outbreak since April, which has seen several cities placed under lockdown. A report earlier this month said several Chinese refiners have asked Saudi Aramco (TADAWUL:2222) to deliver lower quantities of oil in December, which could indicate a slowdown in oil shipments to the country. China has also increased its export quotas for refined fuels, potentially indicating a surplus in crude oil inventories due to falling demand.

Even so, some OPEC+ delegates reportedly told the WSJ that a production increase could take place in December in response to expectations that oil consumption typically increases in the winter. Demand for oil is expected to increase by 1.69 million bpd to 101.3 million bpd by the first quarter of next year, compared to the average level in 2022.

Saudi Energy Minister Abdulaziz has also said in the past that the kingdom will supply oil to “anyone who needs it”.

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