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Explaining Saudi Arabia’s Oil Price Drop

Explaining Saudi Arabia’s Oil Price Drop

Saudi Arabia surprised markets by…

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An Extraordinary Trade For Extraordinary Times

There can be no doubt that we are living in strange times. Looking like a bandit when we leave our house has passed from behavior that is considered reprehensible to something that is required, and stores that just a few months ago wouldn’t let people in if their faces were covered now won’t let them in if they are not. Nor is it just in the area of face-coverings that things have gotten weird. Financial markets are all over the place, with virtually nothing seeming to make any sense.

In energy, we saw an expiring crude future drop to below negative $30 a barrel. I don’t think anyone saw that coming, but in many ways, the bounce that we are seeing now that has resulted in the June contract trading above $20 is even more remarkable. It is in response to a feeling initially, later backed up by hard data, that the supply cuts that basic supply and demand theory told us were coming as the price collapsed are kicking in.

The long-term issue with oil, particularly in the U.S., has been supply so I’m sure that anything that pushes prices up is welcome for some oil traders, if a little late for some others and a double-edged sword for most producers. However, there is still a great big elephant in the room that everyone is ignoring. Demand for crude has been destroyed around the world as gasoline demand has dried up, and that hasn’t really changed.

There is a lot of talk amongst politicians about “re-opening” states, but…





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