Oil short sellers have been issued a warning: watch out for more “ouching”. Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, issued the threat earlier this week in his latest lashing out at oil’s short sellers.
Saudi Arabia’s energy minister is arguably holding the reins of OPEC, which could decide to cut crude oil production again, sending prices soaring in what would surely be a painful outcome to many speculators and short sellers out there.
“I keep advising them (referencing oil speculators) that they will be ouching, they did ouch in April, I don’t have to show my cards. I am not a poker player…but I would just tell them watch out,” the Prince warned.
Oil’s short positions are considerable, at 184 million barrels as of May 16. This is an increase of 140% from the number of short positions in play just a month earlier.
Let the Games Begin
The outcome of such a bold threat is unclear. On the one hand, promises of production cuts will surely bring out the bulls—which we’ve seen over the last couple of days as Brent futures have risen. But it also means that the market is starting to price in the possibility of another production cut when OPEC meets next week. This could deflate some of the shock value-induced price rises should OPEC actually cut production—meaning those short sellers might not be ouching as much as Saudi Arabia’s energy minister would like.
Everything is now on the line for OPEC. OPEC has once again become the market force that has the ability to cut or add to its production, sending prices up or down—no longer hampered by the US Shale industry that used to counteract OPEC’s moves tit for tat. But empty threats should OPEC decide not to cut production could diminish the body’s power to at least jawbone prices up or down—a tool the group used to have at the ready.
If OPEC decides not to cut, prices should sink at least temporarily, handing the shorts a win. Next week, the victor shall be revealed.
By Julianne Geiger for Oilprice.com
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OPEC+ doesn’t see the need to cut production since the current weakness in oil prices has nothing whatsoever to do with the fundamentals of the global oil market which remain very robust and overwhelmingly everything to do with persistent fears of a global banking or financial crisis triggered by a shaky US banking system and weak data about the US economy. Moreover, OPEC+ realizes that cutting production in such circumstances would prove futile.
Furthermore, the threat of a production cut by OPEC+ and the bullish economic support China is providing the market can’t stop persistent fears of a global banking or financial crisis.
Only when these fears subside or disappear altogether will pressure on oil prices eases thus enabling prices to recoup all their recent losses and resume their surge.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert