Saudi Arabia and La-La Land | Financial Times:
Saudi Arabia’s energy minister does not want bearish oil speculators “living in a La-La Land,” as he put it last week. Prince Abdulaziz bin Salman reminded them of his ability to make the market “jumpy” and to hurt gamblers “like hell”. While the former is in his power, the latter could be harder.
So far the kingdom deserves a nomination for best oil trader of 2020. Not because of its pledge to rebalance oversupplied markets, but rather because it recognised the need to adjust and add some dynamism to the supply strategies of Opec, the oil exporters’ cartel.
The shift was subtle but brilliant: adopt a work-from-home mentality, make Opec meetings virtual and more frequent and keep the oil market guessing. The strategy increases volatility as needed to unnerve competitors seeking to plan far in advance.
This maximises Saudi Arabia’s optionality and the competitive advantage as the world’s low-cost producer. The more volatile — or “jumpy” — the market, the higher the value of such optionality. We all learned it in the introductory course on oil trading.
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