The roads seem busier these days, probably a sign of the post-COVID era, but also, even before the Memorial Day weekend, the start of the summer driving season. This, along with an OPEC meeting on June 3-4 in Vienna, suggests that the price of gasoline is going to re-emerge quickly as a topic of general conversation.

The specialist media are already engaged, with Bloomberg reporting that most traders and analysts who were surveyed are predicting no change in production — meaning that the cartel is happy with the current oil price of around $75 per barrel for the widely-traded Brent Crude and does not feel the need to cut output in order to bump it up a few dollars.

But, as always, OPEC’s idea of a reasonable price is not the same as that judged reasonable by Joe or Jane Average. And how good are traders and analysts at predicting OPEC decisions?  They might be OK at interpreting the underlying data but the thinking of oil ministers and the leaders of oil-producing states can be beyond them, as demonstrated by the supply cutbacks that shocked the markets in April, and in October last year.

Energy reporters had to leap into action this week when Saudi oil minister Prince Abdulaziz bin Salman warned: “I keep advising that [speculators] will be ouching. They did ouch in April. I don’t have to show my cards; I’m not [a] poker player … but I would just tell them, watch out.”  Translated into more conventional English, he was saying that those traders who were predicting more price falls are taking a risk because the cartel may cut production, forcing prices up and perhaps causing such traders considerable losses.

“Ouch” is very much the sort of verb Prince Abdulaziz would use. He is an urbane, long-serving oil professional. But the main decision-maker in Saudi Arabia is his (much) younger half-brother, Crown Prince Mohammed bin Salman, aka MbS, or, to his detractors, Mohammed Bone Saw, a reference to the 2018 killing of journalist Jamal Khashoggi. And MbS’s main partner in OPEC decision-making, via the cartel’s larger OPEC+ configuration, is Russian President Vladimir Putin, another man for whom “ouch” is not part of his normal vocabulary.

The Saudi-Russia relationship on oil is intriguing. Saudi Arabia wants relatively high prices because it needs the revenue to fund MbS’s Vision 2030 plans for social and economic transformation of the Saudi kingdom, and in particular the high-profile mega projects that epitomize the crown prince’s ideas, of which the $500 billion NEOM city in the Northwest of the kingdom is the best known.  But Russia is reported not to have followed through on its promises to cut output to protest the international sanctions imposed after its invasion of Ukraine, apparently because of its desperation for any revenue it can get.

As always with real-life economics, there are other factors at play. The current negotiations on the debt limit of the United States are certainly a factor, credited with pushing the price per barrel up a dollar or two. China’s apparent economic recovery is also important for longer-term reasons. And the U.S. government is also finding it challenging to buy cheap oil to refill the strategic petroleum reserve. But OPEC is under pressure as well. Last month, it was condemned by the Paris-based International Energy Agency for its “siege” on ordinary consumers.

The ultimate test may be whether oil market traders are prepared to call Prince Abdulaziz’s bluff, short-selling oil (meaning they bet that the price will fall). Who will be “ouching” if they make the correct bet? 

At least for those who follow this level of market detail, the next week looks like it will be, as they say, very interesting. For the rest of us, enjoy the holiday weekend (which will not be a holiday for the markets in the rest of the world).   

Simon Henderson is the Baker Fellow and director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute for Near East Policy.  

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