Global oil markets are experiencing “temporary” instability caused mainly by a slowdown in the world economy, Oil Minister Ali Al-Naimi said, according to comments published today by the Saudi Press Agency. He reiterated the country’s intention to maintain output amid plunging prices.

“In a situation like this, it is difficult, if not impossible, that the kingdom or OPEC would carry out any action that may result in a reduction of its share in market and an increase of others’ shares,” Naimi said, according to the state-run news agency. Saudi Arabia, the largest producer in OPEC, will stick to its oil policies, he said.

The Organization of Petroleum Exporting Countries decided Nov. 27 to keep its production target unchanged at 30 million barrels a day, ignoring calls from members including Venezuela to curb output to tackle a supply glut. Crude prices, which had already fallen 30 percent for the year by the November meeting, plunged after the decision, extending the drop to 43 percent.

Steady global economic expansion will resume, spurring oil demand, Naimi said, leading him to be “optimistic about the future.” Oil extended gains after the comments.

Eoin Treacy's view

The oil price remains under pressure as OPEC refrains from any action to support it. As the downtrend becomes progressively more overextended, no one will want to cut supply but some may have to. Some of the more overleveraged oil market participants will likely be under pressure as a result of the current situation. .

In the meantime while oil prices have not yet rallied in any meaningful way, rebounds are evident in some of the markets most reliant on oil.

Saudi Arabia’s stock market fell 50% from the September peak to yesterday’s low and bounced emphatically today.

Nigeria’s market has had a similar decline and is now also bouncing.

I pointed out Norway’s bounce in Comment of the Day over the last two days

A short covering rally is currently underway in the above markets. Once this has run its course their ability to hold their lows on a pullback will be an indication of whether demand is returning to dominance beyond the short term. With oil related currencies and stock markets bouncing, the risk of a naked short position in crude oil is rising.