Crude oil showing signs of steadiness despite Saudi's verbal assault

Crude oil prices have been receiving a barrage of bad news of late, most notably from the Saudi oil minister who yesterday said his country will never cut oil production. Ali al-Naimi went on as far as to say that the OPEC will not cut production even if the price of oil falls to $20 a barrel. Clearly that low a price level will force many producers to exit the market which would thus cause the supply glut to shrink. In fact, even at these current levels, their margins are already very tight and probably unprofitable for some inefficient oil producers. So, there is so much further oil can fall before the supply of oil is reduced meaningfully. But if Mr al-Naimi is to be believed, the oil surplus is here to remain for the time being which would exert strong downward pressure on prices. Nevertheless, oil is showing signs of stabilization for the first time in several months with both major contracts eking out small gains last week. Admittedly, one week of gains is like a drop in the ocean. But when you consider for example the fact that we have had the Saudis dismissing talks of future production cut in the meantime without causing fresh lows in Brent oil prices, this suggests that most of the bad news may have finally been priced in. This also means that investors will probably pay more attention to the demand side of things going forward, so watch out for wild price reactions around the time of key economic data releases. Unfortunately, there won’t be much of that to look forward to for the remainder of this year, but if the US GDP is anything to go by then there is reason to be optimistic in the New Year, for oil initially rallied sharply today when it was confirmed that the US economy expanded by a surprisingly large 5% in Q3. This cheerful growth figure suggests US oil demand is likely to be more robust than previously thought. Should the US economy manage to sustain itself at or around the current levels then the rest of the world could benefit as a result, boosting the global demand for oil in the process.