The Kingdom of Saudi Arabia (KSA) wants oil prices to head back to $100.
For obvious reasons: to close the big gap in its social budget, and to pave the way for the successful debut of its Aramco IPO.
And there are a couple of ways of achieving this ambitious goal. One of them is to manage traders’ and investors’ expectations about oil inventories, by creating the sense of an oil oversupply when there isn’t any. That could cause a “short squeeze,” when reality sets in, and traders realize that the oil market is undersupplied rather than oversupplied.
Especially in winter months, when demand for heating oil peaks.
That’s the impression one gets by listening to Saudi Arabia’s oil minister — who is talking markets down lately, as the price of crude oil is heading north!
“KSA has one short term goal to accomplish to earn the most out of ARAMCO’s privatization,” says Athens based shipping expert Theo Matsopoulos. “So there is a sense that the KSA has an unofficial green light since a few months ago, to surgically alter the expectations of crude oil’s market. It is very easy for them. They have created the image of an oversupply market, and when they want to push oil’s price higher, they will just twist the numbers, since there isn’t any independent source to validate or not their numbers. “
“Remember,” adds Matsopoulos, “markets consist of fundamentals and expectations. If someone can play with either one of them, then the game is fixed.”
This isn’t the first time Saudi Arabia has played the oil numbers game. Back in 1997-99 the Kingdom allegedly engineered this sort of confusion, taking the oil market for a wild ride: a big decline in early 1997 was followed by a big jump in late 1997, which lasted until early 2000.
Source: Forbes
