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Uncertainty Drives Investors to Oil Stocks

Uncertainty Drives Investors to Oil Stocks

The reason that investors have…

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Have Oil Traders Misread Saudi Arabia's Production Cut Commitment?

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I have said it many times before in these pages and will no doubt say it many times in the future too, but it is often the case that a traded instrument moves based more on market mood and sentiment than on any hard facts. For traders, “facts” are open to interpretation, and how they are interpreted decides what impact they have on price. However, moods change, and there are reasons to believe that the pessimism around crude that traders are currently exhibiting may be about to shift.

Last weekend, the Saudi government reiterated its commitment to voluntary crude output cuts of 1 million barrels a day, saying that they would continue until at least the end of the year. That is a fact that, on the surface, would seem to be very bullish for oil. Tight supply was the theme in the market from June to September as crude climbed by over thirty percent, so a confirmation of tight supply going forward should be bullish, right?

You would think so…but that announcement came over the weekend, and the 1-week chart for the front-end WTI contract (CL) looks like this…

So, what has changed? Why is what should be bullish news prompting selling?

It is all to do with that malleability of “facts” that I mentioned above. The fact is that the Saudis are continuing with reduced production. But, in the current environment, that is being interpreted as sending a bearish message. “Why would they do that?” is the question…





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