2023.09.17 04:50
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For Saudi Arabia, oil prices have long been at $100! And hedge funds are still fiercely bullish.

Oil prices are not only high, but also expected to rise. Saudi Arabia is posing a challenge to central banks around the world.

Since Saudi Arabia led the way in cutting production, the prices of Brent crude futures and WTI crude futures have soared to over $90 per barrel.

For Saudi Arabia, the price of oil is now approaching $100 per barrel.

According to data compiled by the media, on Wednesday, the price of Saudi Arabia's flagship product, Arab Light crude oil, in Europe rose to nearly $98.47 per barrel, surpassing the prices of benchmark Brent crude and WTI crude.

In the past 40 years, the trading price of Arab Light crude oil has only exceeded $100 per barrel in a few years - 2008, 2012 to 2014, and 2022.

For most of the past 35 years, the difference between Arab Light crude oil and Brent and WTI crude oil has been measured in cents rather than dollars. Moreover, except for Asia, most regions have had a negative premium.

Between 2000 and 2020, the average price Saudi Arabia charged European buyers was about $3 per barrel lower than Brent crude. Recently, the premium it charges has been rising.

Now, Saudi Arabia has set the price of Arab Light crude oil at a record high, $5.80 per barrel higher than Brent crude. For American consumers, this premium has also reached a record high of nearly $7.25 per barrel.

The premium in Asia is currently smaller, but it reached a record level of nearly $10 per barrel last year.

Hedge funds raise bullish bets on oil to 15-month high

Now, not only are oil prices high, but they are also bullish.

Hedge funds have raised their bullish bets on WTI crude futures and Brent crude futures to a 15-month high.

Data from ICE Futures Europe and the U.S. Commodity Futures Trading Commission (CFTC) for four contracts show that fund managers have increased their net long positions in Brent crude and WTI crude by a total of 43,131 contracts to 494,888 contracts, the highest level in about 15 months.

The adjustment of hedge fund positions marks a significant shift from the pessimism seen in the first half of this year.

In the first half of this year, hedge funds increased their short positions in oil to the highest level in a decade. During this period, factors such as concerns about an economic recession, turmoil in the U.S. banking industry, and unexpectedly resilient Russian oil supply collectively pushed prices down, causing significant losses for funds betting on higher oil prices.

In the past two months, international oil prices have rebounded by about 30% since mid-June due to OPEC+ supply restrictions, especially the joint efforts of Saudi Arabia and Russia to extend production cuts. Fund managers have once again flipped from short to long positions.

Saudi Arabia poses challenges for central banks around the world

Analysts say that Saudi Arabia's pricing of crude oil above the benchmark international oil price reflects the pricing power it has gained over the past year and a half, allowing it to charge a record premium for its oil, especially for U.S. and European customers seeking alternatives to Russian oil. Due to Saudi Arabia's central position in the oil market, the scale of this premium is considerable. Saudi Arabia's oil production accounts for about one-tenth of the global total.

One of the reasons why Saudi Arabia has regained pricing power is the global oil market's particular lack of this type of crude oil produced by Saudi Arabia. This is mainly the result of Saudi Arabia's significant production cuts implemented this year. However, it also reflects a fact that the largest additional source of oil supply, shale oil from the United States, is fundamentally different from Saudi crude oil.

Analysts say that Saudi Arabia's pricing strategy is exacerbating global inflationary pressures and may force central banks around the world to maintain higher interest rates for a longer period of time.

Just as during the first oil crisis from 1973 to 1974, Saudi crude oil grades were the main benchmark in the market, and central banks of various countries needed to assess inflation prospects by observing the cost of Arab light crude oil.

However, the current situation is not optimistic - and it is getting worse.