Reports that Saudi Arabia is ready to increase oil supplies may be little new but they support our view that prices are set to fall sharply. As it happens, the Gulf state has already ramped up production this year and oil is not currently in short supply. Instead, prices are being inflated, we think only temporarily, by speculation that the market will tighten in future, either because of a rebound in demand due to global stimulus or additional disruption to supply due to tensions in the Middle East. Nonetheless, the latest reports are a timely reminder that Saudi Arabia is able and willing to do more if prices fail to drop back soon of their own accord.
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