Publications: Notes at the Margin

When in Need, Manipulate (June 24, 2024)

 

Dated Brent prices have risen by eleven percent in two weeks as the market moved from a slight contango into deep backwardation. By one relevant measure, the increase matched the cash price increase that followed Iraq’s invasion of Kuwait in 1990. In the one thousand eight hundred weeks we have followed Brent, markets have experienced a weekly price movement this large on only six other occasions.

 

The price hike resulted from the trading firm Gunvor acquiring most of the Brent cargos and another firm, Trafigura, obtaining most of the Midland WTI crude that can be delivered against the Brent contract.

 

Similar efforts to corner Brent have occurred. It is a small market with limited liquidity that is used to establish the price of most crude sold in the world market. The trader-led Brent squeeze seems to be a “behind the scenes” effort by oil producers to raise prices after their production cuts and strategies to punish speculators failed to do so. In this case, Saudi Arabia is likely orchestrating the push to boost Brent. As The Wall Street Journal noted on June 21, “Saudi Arabia’s $54 Billion Haul Still Leaves It Craving Cash.”[i] Every dollar increase in crude prices is worth more than $2 billion per year to the Saudis.

 

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