Oil price surges after Saudi comments but bank urges cautionNews // November 25, 2015
Oil prices surged upards ealieer this week with Brent crude trading at a US$45 per barrel and WTI at a US$42 per barrel.
Commerzbank said the price rise came on the back of news that Saudi Arabia is willing to cooperate with OPEC and non-OPEC countries in order to ensure stability on the oil market and of oil prices.
Commerzbank said this was interpreted by some market participants as meaning that Saudi Arabia might be prepared to agree to a production cut at next week’s OPEC meeting.
However, commerzbank said: "We regard any such assumption as premature. The statement made by Saudi Arabia represents the country’s official mantra and is nothing new. Nonetheless, Saudi Arabia is being increasingly forced onto the defensive by the currently low oil prices. Reserves are shrinking as current account and budgetary deficits grow.
"The country has now been forced for the first time to issue bonds. Furthermore, the rising forward rates on the foreign exchange market indicate that there is growing speculation that the pegging of the Saudi Arabian riyal to the US dollar could be changed or abandoned. Saudi Arabia will thus be unable to maintain its current strategy for long unless oil prices recover. Money managers no longer appear to expect prices to recover in the near future: they reduced their net long positions in Brent by 26,900 contracts in the week to 17 November."