Saudi Arabia’s Surprise Supply Cut Ripples Through Oil Markets

Saudi Arabia shocked investors on Tuesday with a decision to slice crude output in February and March as part of an OPEC+ supply agreement. The optimism around tightening global supply permeated through the oil market, pushing benchmark crude futures to the highest levels in months and causing swings in calendar spreads and options. While spreads rallied and options turned less bearish, technical indicators warned crude’s rally may be overdone.

Here are four charts showing how the supply declaration from the world’s key crude producers, including Saudi Arabia and Russia, rippled across the deepest corners of the oil market.

Surging Spreads

Timespreads — where traders bet on the price of oil for different months — showed some of the most marked improvements during Tuesday’s session. Brent’s front-month contract surged to a 17-cent premium versus the contract three months out, pointing to expectations for tighter supplies after trading in a bearish contango structure the last few sessions.

Saudi Arabia’s pledge to cut an extra 1 million barrels a day for February and March sets up for a tighter market than traders were initially anticipating after OPEC+ decided last year to loosen the taps in January.

Deferred Rally