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The Saudis announced extreme measures on Sunday by drastically slashing OSPs to Asian refiners for April barrels.  Large speculators had largely ‘capitulated’ on oil ‘longs’ prior to this historic price decline, as analysts at Rabobank notes.

Key quotes

“The Saudis slashed this discount to Asian refiners by $6/bbl from March levels, the biggest month-on-month change in history.”  

“The bold move is likely to lead to mutually assured destruction as all those involved will be feeling severe pain at current price levels.”

“We see notable headwinds for oil prices in the current environment as oil supplies are expected to meaningfully increase in the near-term, large speculators are likely to remain net ‘sellers’, and the forward curve moves deeper and deeper into ‘contango’ as a result.” 

“It is worth noting, however, that large speculators had largely ‘capitulated’ on ‘long’ positions prior to this week’s historic price decline which should result in less selling pressure on the margin than if speculators were a big ‘long’ preceding the decline.”