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Saudi News Shifts The Long-Term Prospects for Oil

Aramco Oil

I have mentioned a few times here that I believe that one of the keys to understanding short-term moves in financial markets is to understand that traders overreact. When your working life is focused on one commodity or currency pair, or maybe a handful of stocks, any news relevant to what you trade takes on exaggerated importance and overreacting is only natural. That means that for those outside dealing rooms, fading an initial big move and profiting from the retracement is usually a good strategy. I still stand by that, but sometimes news comes out that is, to quote Joe Biden a “big blanking deal”, and that is the case with oil prices when it comes to this week’s stories out of Saudi Arabia.

In case you missed it, the country’s ruler, King Salman, or more accurately his son, Prince Mohammed bin Salman, instituted a massive corruption crackdown last weekend that involved the arrest of many prominent Saudis and more have been detained this week, bringing the total to over two hundred. On the surface that looks like a good thing, but many are questioning the Crown Prince’s motives given that graft has been a normal part of doing business in the Kingdom for so long. The theory is that this is more about consolidation and even extension of power than it is about corruption.

That theory is supported by the regime’s shift to a much more aggressive stance on foreign policy this week. The Saudis have called for international cooperation…

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