Citing "disconnect" in the oil futures market, Saudi Energy Minister Prince Abdulaziz bin Salman dangled the threat of potential OPEC+ production cuts that could come at any time.
In an interview with Bloomberg on Monday, the Saudi energy minister said that "extreme volatility" was "undermining the market's essential function of efficient price discovery", in turn rendering it impossible for physical users to manage the costs of hedging or navigate the inherent risk.
"This vicious circle is amplified by the flow of unsubstantiated stories about demand destruction, recurring news about the return of large volumes of supply, and ambiguity and uncertainty about the potential impacts of price caps, embargoes, and sanctions," the Prince told Bloomberg.
Without sufficient liquidity, he said, there is a high level of disconnect, which means the "markets can't reflect the realities of the physical fundamentals in a meaningful way…".
The Prince described the markets as being in a state of "schizophrenia" and creating a "yo-yo" market that has lent a false sense of security.
"Spare capacity is severely limited and the risk of severe disruptions remains high," he said.
The energy minister insisted that OPEC+ is "stronger and more cohesive than ever", but also indicated that the expanded cartel could cut output at any time "and in different forms".
The minister's comments come as the cartel begins work on a new agreement for post-2022 and the nature of the interview suggests that OPEC+ plans to view any new agreements through the prism of the current market volatility, which the Saudis appear to view as having been hijacked and disconnected from true fundamentals.
The energy minister's warning comes shortly after reports that OPEC+ members produced 2.9 million bpd below their production target in July.
By Charles Kennedy For Oilprice.com
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