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FxPro Forex Analysis: Saudi Arabia ‘Pumps’ Oil Prices Higher

The main focus today is on oil prices, which, since late 2014, have continued to rise to new heights. Saudi Arabia announced their desire to see the prices reach $80-100 per barrel on Wednesday, causing oil to jump $2 (3%) to $73.40. Saudi Arabia’s comments were seen as an intent to continue limiting oil production, although oil stores are currently close to the 5-year average.

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It’s worth mentioning that Saudi Arabia plans to sell a 5% stake in their largest oil company, Saudi Aramco, and launch the biggest IPO in history, valued at $100Bln. Higher oil prices would likely increase demand for these shares, providing the opportunity to earn more money.

Nevertheless, this pre-sale price pumping tactic could easily turn into a time bomb. After the deal, Saudi Arabia could return to the strategy they used in 2014, refusing to balance supply and pushing prices to multi-year lows by increasing output.

Yesterday, the oil market was supported further by the release of U.S crude oil inventories. The data showed a decline of 1 million barrels, a 19.7% drop compared to last year, despite the growth in oil production, which has reached 10.54 million per day ( 14% y/y). For now, Saudi Arabia remains the 3rd largest crude oil producer, behind Russia and the U.S.A., but has the capacity to increase supply quickly.

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