The Saudis pushed the oil price too high
In the intricate dance between supply and human appetite, Saudi Arabia's calculated attempt to engineer scarcity has instead revealed the limits of any single actor's power over a global market. Energy analyst Paul Sankey, appearing on CNBC, observed that the kingdom's production cuts to 9 million barrels daily drove crude prices past the threshold where demand simply retreats — a paradox as old as commerce itself. The gasoline crack collapsed, refiners stepped back, and the market began its quiet correction. What was designed as a lever of control became, in the end, a demonstration of the market's stubborn sovereignty.
- Saudi Arabia's production cuts, meant to tighten supply and elevate prices, have instead pushed crude so high that global gasoline demand is visibly crumbling beneath the weight.
- Brent crude and West Texas Intermediate both plunged as much as 6% in a single Wednesday session — a sharp, sudden market verdict on the kingdom's overreach.
- The 'gasoline crack,' the vital spread between crude costs and refined gasoline prices, has collapsed entirely, signaling that refiners can no longer turn a profit and are pulling back from purchases.
- Saudi Arabia now faces a corner of its own making: cut production further and bleed market share to rivals, or hold steady and absorb lower revenues — with analysts betting on the latter.
- Quietly offsetting the official supply cuts, oil from sanctioned nations like Iran and Venezuela continues to flow into global markets, softening the scarcity narrative traders had accepted.
- The trajectory is pointing downward — softer demand, adequate supply, and a Saudi gamble gone sideways all converging to bring lower pump prices to drivers within months.
On a Thursday morning, energy analyst Paul Sankey delivered a counterintuitive forecast to CNBC viewers: gasoline prices were heading down — not because oil had grown plentiful, but because Saudi Arabia's effort to make it scarce had overshot so badly it was now destroying the very demand it depended on.
The kingdom had trimmed output to 9 million barrels a day, a deliberate squeeze designed to keep prices elevated. But crude climbed past the point where the economics of refining still made sense. American gasoline consumption weakened week after week, and on a single Wednesday, both Brent and WTI crude fell as much as 6 percent — the market speaking plainly. The most telling signal was what Sankey called the 'gasoline crack,' the spread between crude costs and refined gasoline prices. It had, in his words, absolutely cratered. Refiners couldn't profit, so they bought less crude. The Saudis had miscalculated.
The kingdom's next move was constrained by its own strategy. Cutting further would mean surrendering market share to other producers — a long-term cost the Saudis could not absorb. Sankey believed they would hold, accepting lower revenues rather than deepening their exposure.
On the supply side, the picture was fuller than headlines suggested. American domestic production held steady, and oil from sanctioned nations like Iran and Venezuela — largely ignored by traders — was quietly filling gaps left by official cuts. The world had more oil than the prevailing narrative admitted.
Short-term wildcards remained, but the underlying current was unmistakable: demand was soft, supply was sufficient, and prices had room only to fall. The Saudi attempt to engineer scarcity had, by its own momentum, engineered the conditions for abundance.
Energy analyst Paul Sankey walked into a CNBC studio on Thursday with a straightforward prediction: the price you pay at the pump is about to drop. Not because oil suddenly became abundant, but because Saudi Arabia's strategy to prop up crude prices had backfired so thoroughly that it was now crushing demand across the global market.
The kingdom had cut its oil output to 9 million barrels a day, a deliberate move designed to tighten supply and keep prices elevated. Instead, Sankey explained, those cuts had pushed crude prices so high that refiners and consumers simply pulled back. The math no longer worked. Gasoline demand in the United States—the engine that drives global oil consumption—had been weakening week after week. On Wednesday alone, both Brent crude and West Texas Intermediate oil fell as much as 6 percent, a sharp signal that the market was repricing downward.
The clearest sign of the disconnect was something Sankey called the "gasoline crack"—the spread between what crude costs and what refined gasoline commands. That gap had, in his words, "absolutely cratered." It was a technical measure, but it told a human story: refiners couldn't make money at these prices, so they bought less crude. Demand was evaporating. The Saudis had overshot.
What made this moment significant was what it meant for Saudi Arabia's next move. The kingdom faced a choice: cut production further to defend prices, or hold steady and accept lower revenues. Sankey was confident they would choose the latter. Any additional cuts would risk losing market share to other producers—a long-term wound the Saudis could not afford. They had already pushed as far as they could push.
Meanwhile, the supply side was holding up better than the headlines suggested. American domestic production remained steady. Oil from sanctioned nations like Iran and Venezuela, which most markets had written off, was quietly offsetting production cuts elsewhere. These supplies hadn't received much attention from traders and analysts, Sankey noted, but they were real and they mattered. They meant the world had more oil available than the official narrative acknowledged.
There were still wildcards—a Canadian pipeline outage, Russian production decisions—that could swing markets either direction in the short term. But the underlying current was clear. Demand was soft, supply was adequate, and prices had nowhere to go but down. Within months, drivers would see that reflected at the pump. The Saudi gamble to engineer scarcity had instead engineered abundance, and the market was beginning to price that reality in.
Citas Notables
The gasoline crack has absolutely cratered. That's telling you the Saudis pushed the oil price too high.— Paul Sankey, energy analyst, to CNBC
You will see lower prices at the pump over the coming months.— Paul Sankey
La Conversación del Hearth Otra perspectiva de la historia
Why did Saudi Arabia's production cuts end up hurting them instead of helping?
They cut too much, too aggressively. The goal was to tighten supply and keep prices high, but they pushed crude so far above what the market could bear that demand just collapsed. Refiners stopped buying, consumers pulled back. The price signal worked against them.
So the gasoline crack cratering—what does that actually mean for someone buying gas?
It means refiners are losing money on every gallon they produce. When the gap between crude and finished gasoline narrows that much, the economics break. They buy less crude, demand falls, and eventually prices have to come down to find equilibrium again.
Could Saudi Arabia just cut more production to push prices back up?
That's the trap they're in. If they cut further, they lose customers to other producers. Iran, Venezuela, even American shale—those suppliers are still in the market. The Saudis can't afford to shrink their share just to defend a price point.
Is there any scenario where oil prices stay high?
Only if something disrupts supply significantly—a major pipeline goes down, Russia makes unexpected cuts, geopolitics flares up. But those are short-term shocks. The underlying demand is weak, and that's structural. It's not going away.
So this is about demand destruction, not supply?
Exactly. The Saudis thought they could engineer scarcity. Instead they engineered a price so high that it destroyed the demand they were trying to serve. It's a classic miscalculation.