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Saudi Oil Moves: A Drop in the Bucket?

Also, the Saudi moves are being viewed in a vacuum right now and not in concert with the real global oil situation.

The reason that the Saudis are moving so rapidly all of a sudden on so many fronts is precisely because of the supply disruptions that they expect -- mostly and most importantly from Iran, but also potentially from the Sudan, Yemen, Syria, Iraq and Libya.

It is in this light that most traders are digesting this news. Instead of taking it as a bearish signal for oil prices, they're viewing it as a bullish sign that the world's largest crude oil supplier is preparing for an inevitable tightness in the global oil market.

On Tuesday, global oil markets moderated only slightly on the news of this vast new supply.

Prices fell a bit more than a dollar and a half a barrel, but they are again rallying slightly on Wednesday.

There is a very strong echo of the Saudi move in 2006, where fundamental news of rising supply is not enough to temper the financial speculation and risk premium already in the oil markets -- things that are only likely to increase through the summer.

As the Saudi news plays out and tankers gets filled and shipped and begin to hit the physical markets, there are sure to be downdrafts in oil prices.

It is the nature of the oil market to take quite a few days, even weeks, to assimilate strong physical changes in supply through the financial markets. The Strategic Petroleum Reserve release in 2011 is an example of this "delayed" reaction.

But in the end, this is looking very much like 2006, where a big supply increase cannot derail a market that is trending strongly higher. Even the mighty Saudis are likely to be derailed by the massive financial influences in the global oil markets.

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