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Dear Reader,
Yesterday, OPEC+ convened for its June meeting, and as expected, there was yet another 1 million barrel per-day (bpd) reduction.
That was the headline, at any rate. But what the media has failed to report are the tense moments and the market's reaction after Saudi Arabia took the initiative to reduce its output independently.
I'm going to take you inside and show you the real story of what happened at this meeting, because it affects you, me, and virtually everyone else on the planet...
The Paradox Is the Least Worrying Thing About the Meeting
Those who predicted a cut were proven right. And those voices who predicted no cut... were also right.
Sounds confusing, no?
Well, to meet their target, OPEC+ adjusted Russia's production targets to align with its actual levels of production. Additionally, the United Arab Emirates was granted the opportunity to increase its quota.
The meeting seemed highly tense. Sources told me that it was initially delayed and no concrete agreements were reached.
If the meeting had solely revolved around Russia and UAE's production decisions, we would have likely witnessed a selloff in the energy sector today. However, it was Saudi Arabia, the world's second-largest oil producer in 2022, that took action to establish a floor on oil prices.
But, as I've said before, there seems to be a hidden agenda - something going on beyond simple matters of oil production and supply...
A confidential source here in Switzerland, speaking on condition of anonymity, suggested affluent Saudi families may have investments in several hedge funds that are currently suffering due to the recent decline in crude prices.
By reducing production from 10 million bpd to 9 million bpd by July, Saudi Arabia aims to harm short-sellers who have been aggressively fueling the selloff.
The production cuts made by Saudi Arabia are temporary and won't significantly impact their revenue if oil prices stabilize. Essentially, they need oil prices to rise by $8 to $9 per barrel from the current level. This way, they can sell less oil at a higher price while generating the same revenue.
Another important aspect of this meeting is Saudi Arabia's ongoing efforts to support the BRICS nations as they strive to distance themselves from the United States dollar, but it's crucial to understand that this concern doesn't actually stem from the value of the dollar itself.
On the contrary, sanctions imposed on Russia have raised serious concerns among foreign nations. Now that the U.S. is contemplating sanctions against Uganda due to its stance on LGBT issues, global leaders are realizing that their own countries could be targeted next, with their assets frozen by the U.S. government.
The Saudis likely earned significant goodwill with other OPEC+ members over the weekend, and it's possible that they will witness greater cooperation from them in future meetings.
If you're currently trading oil, I believe there may be further weakness ahead. However, I remain confident that the maximum downside for West Texas Intermediate (WTI) prices is i…
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.