The oil price is spiking. Here’s why it’s spiking, and also what appears to be indicators that cheap gas & diesel prices have come to an end…
For information on what took place in Saudia Arabia over the last several days, see this post.
Here’s some analysis on the price action from Gregory Brew at OilPrice.
A power-play by the most powerful man in Saudi Arabia took place over the weekend, with big repercussions for the future of the country that is OPEC’s de factor leader and the world’s second-largest oil producer.
Mohammed bin Salman, Crown Prince and heir to King Salman, was granted control over a wide-ranging anti-corruption committee last week, and immediately used his new power to consolidate his position. Eleven former ministers and dozens of Saudi princes were arrested or detained on charges of corruption, graft or financial malfeasance.
The crackdown by the Crown Prince, who is commonly called “MBS” by the Western media, is largely seen as a move to consolidate power before he assumes the throne later this year or next. It is nevertheless a shocking move by the Saudi royal, one that will have big repercussions on the country’s oil industry.
The short-term outlook was bullish: MBS is seen as a key supporter for the OPEC policy of measured production cuts, and his consolidation of power means the cuts are likely to be maintained and extended through the rest of next year.
Conversely, rising prices may also signal increase instability in Saudi Arabia: there are signs that the crackdown may have been meant to stave off a more substantive challenge to MBS from upper-echelon figures in the Saudi hierarchy. The uncertainty in future Saudi oil policy has created a bull market. While MBS is known to favor an extension of production cuts, the turmoil within the Saudi ruling elite could signal a shift in policy in advance of the November 30 OPEC meeting in Vienna, where an extension to production cuts is expected to dominate the agenda.
Sure enough we see that oil has surged today:
In fact, as we zoom out, it is hard to find anything but rising crude prices as indicated by the charts.
Here’s the massive surge on the daily:
The weekly is showing multi-year highs:
And the long-term view, over the course of the monthly dating back to 1998 (check out that low), we see the uptrend is clear:
Two higher-lows and three higher-highs drawn out over the course of years.
There is no doubt that this could be the black swan that nobody was calling. If crude rises over the next six months, we may have just found a new way to spell the word “d-i-s-a-s-t-e-r”.
There is precedence for such sustained, market shaking moves:
Crude went from over $106 to $44 between in six months between June 26, 2014 to March 16, 2015.
It might just be time everybody front-runs the rise in energy prices, which will, by their very nature, affect the prices of absolutely everything.
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