OPEC+ managed to engineer a modest spike in crude prices after blindsiding markets with a surprise output cut.

Going strictly by the adjectives employed  Monday, you’d think oil went through the roof. “Surge” was popular, so was “soar” and I even saw “skyrocket” at one point.

At the highs, WTI was up around 8%. Eventually, markets settled on ~6%, although the situation could look different by the time you read these lines.

If crude does stage a meaningful and durable rally and US gas prices rise on a lag, they’ll be plenty of hand-wringing and finger-pointing. In red states, Americans who insist on driving cartoonish monster trucks will order new sets of Joe Biden “I did this!” stickers, which will be unironically (and illegally) affixed to gas pumps next to the digit readouts.

As usual, those drivers will be oblivious to their own role in this global soap opera: If they weren’t driving an all-gas, tank-sized vehicle, what the Saudis do or don’t do wouldn’t be as relevant for Americans’ daily lives. That’s not to suggest everyone should buy a Prius, it’s just to say that notwithstanding the tragically high odds of encountering weapons of war at an elementary school in the US, you don’t need a five-row, armored personnel carrier to shuttle two kids to school and soccer practice — a regular SUV, or even just a Honda Accord would work just fine. That’d save Americans a lot of money, not just on gas but also on maintenance, because anything that’s “proudly made in the USA” is going to “proudly break down in the USA” at some point, and usually at a very inconvenient time.

Anyway, the OPEC+ drama was good for a smattering of $100 crude headlines (triple-digits are coming, we’re told). Notably, last week’s price spike (tied to some new Baghdad-Erbil row) was actually 50% larger than Monday’s jump.

Forecasting oil prices is a bit like predicting Treasury yields six months or a year in advance. Everybody knows projections are highly unlikely to be accurate, but we engage in the exercise anyway because we have to for all kinds of reasons, some of them justifiable, others not so much.

“Combining this lower OPEC+ production path and our pricing framework — which relates timespreads to OECD commercial inventory levels — implies a mechanical boost to December 2023 Brent prices of +$7/bbl,” Goldman said. “Moving in the other direction, the 10.6mb French SPR release (following strikes) and a modest additional downgrade to global oil demand of 0.1mb/d (reflecting in part our Euro Area GDP downgrade following tighter credit) are together worth -$2/bbl on December 2023 Brent,” the bank added. A simple netting exercise gets you a $5 “nudge” (Goldman’s word) higher for Brent in December. The bank’s forecast is $95 versus $90 before the cuts.

Every analyst who weighed in Monday recycled familiar language around the diminished threat of a US shale response. Once upon a time, that threat (i.e., the specter of lost market share or at least the potential to trigger a non-cartel response by pushing prices to levels that make alternative supply economical) might’ve made OPEC hesitate. That’s not a concern anymore. Non-OPEC supply is more or less inelastic, and so is demand below $100, so this wasn’t an especially risky gamble from a market perspective.

It might’ve been risky from a political perspective, though. The Saudis plainly believe recent geopolitical developments call for an accelerated strategic realignment. Xi Jinping’s efforts to establish a good rapport with Mohammed Bin Salman+ and Beijing’s successful bid to broker the restoration of diplomatic ties between Riyadh and Tehran+ are evidence of China’s Middle East ambitions. Vladimir Putin has a brother in autocracy in the Crown Prince which makes for a stark contrast with MBS’s frosty relationship with Joe Biden.

“Since August, when Washington did not get the OPEC increase it was seeking after President Biden’s trip to Jeddah, it has been apparent that Saudi Arabia is prepared to endure increased friction in the bilateral relationship,” RBC’s Helima Croft said. “We have made several trips to the Kingdom in recent months and one of the key messages has been that the United States is now seen as just one of several partners, and that the bilateral relationship with China is rising in importance.”

Still, it’s too early for a wholesale Saudi pivot. MBS has expensive plans for modernizing the Kingdom (including grandiose construction projects which, going by the promotional videos anyway, look a bit far-fetched). While domestic outlays can self-evidently be paid in riyals, the riyal is pegged to the dollar. Notwithstanding weekly petroyuan propaganda, it’s exceedingly unrealistic to suggest the Saudis can maintain the peg while invoicing crude in another currency. If they invoice it in another currency and then turn around and convert that currency to dollars, there was no point. In addition, Beijing might’ve put a Band-Aid on the official Saudi-Iran relationship, but Xi can’t “solve” the sectarian divide. It’s an eternal struggle. It’s not resolvable by definition, which means the unofficial relationship will remain fraught in perpetuity.

As for the Riyadh-Beijing nexus, Croft went on to say that Xi “has been described as a less demanding partner than Washington — not making ever-changing oil asks or seeking full alignment with foreign policy aims.” That’s probably true, but there’s a reason Washington is so demanding. The US provides the Saudis with security guarantees and weapons. If I’m guaranteeing your physical security, you shouldn’t be terribly surprised (let alone aggrieved) when I demand that you guarantee my economic security. In addition, it’s often the Saudis “seeking full alignment” with foreign policy aims from the US, not the other way around. Just ask Yemen — or whatever’s left of it.

Obviously, the White House will be less than enamored with anything that threatens to prolong America’s inflation fight, and although quite a few analysts attempted Monday to explain the cuts solely by way of macro factors and oil market specifics, you’d be totally remiss not to incorporate the political element. I don’t think it’s unreasonable to prioritize geopolitical analysis in this discussion.

In any event, RBC’s Croft summed it up pretty well. “[Sunday’s] move, like the October cut, can be read as another clear signal that Saudi Arabia and its OPEC partners will seek to short circuit further macro selloffs and that Jay Powell is not the only central banker that matters,” she wrote.