Saudis Look to Boost Crude Prices After Being "Duped" Into Lowering Them by Trump

Some analysts think Brent will remain at $60-$70 for some time to come.

The notion that U.S. president Donald Trump fooled Saudi Arabia into boosting output, thereby causing his long-sought lower prices for motorists, has resulted in the kingdom slashing oil shipments to America.

According to ClipperData, the Saudis are loading roughly 600,000 barrels per day (bpd) on tankers bound for the U.S. this month, down from more than 1 million bpd in July and August - or record lows, if official trade figures match these loading estimates.

CNBC pointed out that sending fewer barrels to the United States means U.S. crude stockpiles are more likely to drop, and shrinking inventories tend to push up oil prices.

While the Saudis earlier spearheaded the campaign by the Organization of the Petroleum Exporting Countries (OPEC)  to lower production in response to signals that inventories are building worldwide, in recent days analysts have suggested that Trump duped the cartel and its allies into raising output, by announcing that his sanctions against Iran would reduce that country's crude exports to zero.

They regard his recent issuing of sanction waivers to countries such as China and India as proof of his ruse: John Kilduff, founding partner at Again Capital, noted, "The Russians and the Saudis in particular ramped up production, ramped up exports ahead of what was supposed to be severe sanctions on Iran, and when the administration gave the eight waivers to Iran's largest buyers, it undercut that whole equation.

"So now we've tripped into an oversupply situation almost overnight because of the severe reaction by Russia and the Saudis to cover for Iran losses, which never materialized."

Ed Morse, head of commodities research at Citigroup Inc., referred to the oil price plunge as a "Made in America phenomenon."

Matt Smith, head of commodities research at ClipperData, added, "They've really done a good job of decreasing that oil price, but it has been at the expense of some of those relations there, because surely the Saudis have got to be pretty unhappy with the way things have played out here."

As for the resiliency of current low oil prices, Gary Ross, CEO at Black Gold Investors, said while OPEC is likely to proceed with cutbacks, "they're not likely to cut back enough to drive prices back up to anything like $80 Brent; I think we're going to be in a $60 to $70 Brent market for some time."

Amid talk of the crude price plunge is a conspiracy theory, advanced by Goldman Sachs Group: it blamed the rout on a combination of momentum trading strategies, and selling from financial institutions which had helped arrange hedges on behalf of oil producers.

Jeff Curry, head of global investment research for the bank, stated in a note, "Increased selling of crude oil futures by swap dealers as they manage the risk incurred from existing producer hedging programs" was a key contributor to the rout; producers often lock in their price exposure by buying put options from banks, and as prices fall toward the level where the options pay out, the banks are then forced to sell ever greater numbers of futures to hedge their own risk.

While Goldman didn't cite any producers that have locked in their oil price exposure, Bloomberg noted that only a handful of hedging programs are large enough to trigger wild market swings, including the Mexican government oil hedge, as well as the hedging activity of U.S. shale producers.

Goldman, which is gaining a reputation for frequently reversing its energy sector forecasts, earlier this week stated that concerns about the deteriorating demand for crude are overblown and that rising volatility will soon discourage momentum traders; that coupled with the OPEC cutbacks will soon put an end to the current price environment.