Saudi Arabia Turns Smart

After a disastrous last fall, when Saudi Arabia in consort with Russia left their well-disciplined oil export strategy provoking a collapse in the price of oil, Saudi now has turned smart.

The temptation to sell some extra oil when prices are high is understandable, but doing so for the wrong reason, is a recipe for disaster. The wrong reason being high prices.

Led to believe that Iranian oil would be withdrawn from the market due to US sanctions, Saudi and Russia unwisely increased their production ignoring the one imperative factor determining the price of oil; inventory.

In this first quarter of 2019 it seems that Saudi Arabia has learned the lesson. Their whole export strategy appears to be managed by professionals with a strong support from the very top.

For any oil producer or anyone else with an interest in a fairly stable and healthy oil price, focus should be centered on global oil inventories and keeping the forward curve in backwardation. Price is insignificant and any price increase or imagined future shortages are irrelevant unless the inventories and the price curve indicate the go-ahead to increase production.

Saudi Arabia has recently acted with discipline and resolve. In order to balance the oil market in the coming years it requires them to continue on that course.

Well done Saudi!
Hans Berglund, CIO
ProxyPetroleum Energy

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