Saudi Rhetoric Sends Oil Prices To Two-Year High

28/10/2017 22:54 AST

Comments made by Saudi Arabia's Crown Prince Mohammed bin Salman (MBS), sent Brent crude to its highest in more than two years, to US$59.30 a barrel, Reuters reports. West Texas Intermediate was more impervious to the comments, but it also gained a few cents, to close at US$52.64 a barrel-the highest in six months.

The comments themselves are of the Saudi garden variety, and include a) a stale reassurance that the Aramco initial public offering is still on track for its scheduled takeoff in the second half of 2018; b) a vague pledge to do whatever it takes to support oil prices; and c) a vow to quit its oil dependency and move beyond fossil fuels at some point.

No matter that the assurances have all been made before-the comments add to the already growing optimism about OPEC's production cut deal, which will almost certainly be extended until the end of next year, after Russia's Vladimir Putin and now MBS have backed an extension.

As for what will happen after December 2018 in case of an extension, that's still a mystery, but this seems to be too far in the future for anyone to care about right now, or almost anyone. Saudi Arabia's Energy Minister Khalid al-Falih said earlier this week that "When we get closer to that (five-year average) we will decide how we smoothly exit the current arrangement, maybe go to a different arrangement to keep supply and demand closely balanced so we don't have a return to higher inventories."

These comments suggest that the lower production may become something permanent as long as everyone in OPEC and its external partners agrees, but this is unlikely: Russia's Alexander Novak publicly said that there are plans to boost oil production next year with or without an OPEC/Russia deal extension.

Oilprice.com