Relying on
these Oil Analysts (OA) does not necessarily
mean you will be handed straightforward answers,
but perhaps with some luck you will see a ray of
light.
Saudi Arabia is saying that they
are raising oil production to 12 million barrels
a day. That’s highly debatable. Russia is saying
that they can raise oil production to 13 million
barrels a day. OA1 cuts to the chase:
“Both are bluffing. Prices
are still rising. That means no one believes
them.”
OA2 kicks in, reminding that,
“oil price is holding because of
the 1.5 million barrels a day pulled off the
market by a strike in Kuwait of about 10,000
workers. That cut their 3 million barrels a day
production in half. Now they are going back to
work. Yet the price of oil is still rising.”
I
had explained
before how the oil price was holding over $40.00
a barrel even with concerted Washington pressure
over Saudi Arabia to keep it down. Then, OA3 had
told me: “that’s
because oil demand and supply is tightening.”
But then OA4 came up with a totally different
outlook; the whole thing was about 'The Big
Long', upon which I based my prediction of
$45/$50 per barrel when I was in Tehran in
November 2011 and the price was approaching $100
a barrel. The Saudis have been supporting the
price and while they have plenty of capital to
do so at high prices,
storage is finite. Aligning with this, OA4
added that: “the
market is about to crash, and is only being
supported by the financial positions of the
Saudi/GCC support operation, now unwinding."
OA5, predictably, could not agree that the
Saudis are supporting the market and about to
let it collapse. He elaborated on how
“hard it is to predict
day-to-day prices. The only way you can know
what is happening is to watch by satellite or
surface observation the tankers coming out of
each exporter, assume they are full, check their
names to look up their capacity, and then add up
what is leaving each exporter. What they say
otherwise means nothing. There are services that
do this that cost about $300,000 a year.”
OA6 kicked in with some perspective, explaining
what happened in the middle of 2014:
“The oil price started to crash
with no visible increase in production. The
deduction had to be that the surplus in the Gulf
- which was the only place where there was a
surplus - was being dumped in the market by the
Gulf States, under orders from Washington. And
this fit geopolitically with the uprising in
Kiev as a replay of Afghanistan.”
If there is a consensus amongst most OAs, it is
that Saudi Arabia is hurting. OA7 says he’s been
“watching the markets,
and a lot of this static comes from Iran trying
to break into the market. The Gulf States are
trying to prevent that as much as possible and
trying to cut Iran's throat.
However, I do not see overall that the situation
is deteriorating. Such a severe drop in price
restrains production. The amount of excess was
not more than about 5 percent of the market; not
20 per cent, as in 1985. It has to be tight now
based on macro-logic and that is why a famous
Goldman Sachs former trader who picked the
collapse is not massively buying.”
Still confused? You should be. Because now
another variable kicks in – the rise
of US gasoline demand. OA8 has a fine take on
the matter: “I was
expecting this in the second quarter, not now.
We should be over fifty to sixty dollars a
barrel then. Fundamentals always prevail in the
end.”
So a
credible scenario seems to be a world not
exactly awash in crude oil, and with the price
of a barrel going up soon. And right at this
juncture we find China’s CNPC making a play to
become a major shareholder of Rosneft – Russia’s
top oil producer, which plans to sell 19.5
percent of its shares.
Predictably, US analysts don’t seem to
understand why Rosneft may become a top
Russia/Chinese-owned corporation. This has
nothing to do with selling oil assets when
prices are down; Rosneft shares are doing fine,
by the way. It’s about the energy/financial
consolidation of the Russia-China strategic
partnership – from Pipelineistan (those massive,
$300 billion gas deals clinched in 2014) to the
close connection of Moscow and Shanghai stock
exchanges. Translation: all these sophisticated
moves further bypass the US dollar.
Oil, in
this complex equation, is just one component.
For instance, the Ministry of Economic
Development in Moscow works with two basic
hypotheses: best case at $40 a barrel, and worst
case at $25 a barrel. It is duly preparing for
both.
And now
comes what could be a potential game-changer:
the House of Saud’s “vision”
for a post-oil economy.
These
are the basics, as announced by Warrior Prince
Mohammed bin Salman, 30, the conductor of the –
illegal - war on Yemen that is overflowing with
“collateral damage”. Saudi Arabia’s
power stems from its possession of Mecca and
Medina, and geostrategic “Arab and Muslim
depth”; it’s central to global trade, with
30 percent passing through the Red Sea and the
Persian Gulf; and the future lies in the
creation of a $2 trillion sovereign wealth fund,
coming from the sale of 5 percent of shares in
Aramco, the number one oil company on the
planet.
Riyadh,
we got a problem. Assuming that Aramco’s partial
IPO will yield that astonishing $2 trillion, and
these funds are invested all across the West,
Saudi Arabia could collect around $100 billion a
year. Not much; in fact, only 1/6 of Saudi
Arabia’s GDP in 2015 ($653 billion, of which 70
percent come from oil exports). In a nutshell:
this plan will not deliver Saudi Arabia a viable
post-oil economy.
As if
this was not enough, the oil hacienda is
currently invested in two expensive wars – in
Yemen (directly) and Syria (indirectly).
Crucial: the Warrior Prince de facto conducts
both. Moreover, the House of Saud will continue
to buy spectacularly costly weapons from the
usual suspects - the US, UK and France - like
there’s no tomorrow.
Back to our OAs. OA8 says that the Saudis under
the Warrior Prince made a major mistake:
“They have now antagonized
the Russians and the Americans. Brennan wants
their blood no matter what he says as he thinks
of them as terrorists. Also, he believes that
they have nuclear tipped missiles from Pakistan.
The US cannot reconcile themselves to this.”
Moscow,
on the other hand, wants friendly relations with
Riyadh, but there’s a perception Russia was
betrayed at Doha (cutting oil production was a
done deal until the Warrior Prince scuttled it
on the very day of the signing.)
Which brings us to OA9: “The
self-inflicted wound of cutting the oil price by
the Saudis for market share is foolish. The time
now is to conserve oil and refrain from selling
it, awaiting the tripling of the Chinese economy
with the Belt and Road plan. Demand in five or
ten years would be massive and oil will be then
near $200 a barrel.”
So, in
the end, our oil thriller will be all about
China; Beijing will need to buy all the energy
it needs to pursue the completion of the New
Silk Roads. Meanwhile, the House of Saud faces a
stark choice. Its “post-oil economy”
plan will fail, as others before failed. The
Warrior Prince must decide which of the
superpowers to ally with. If he thinks he can
pull it off all by himself, there’s a cab driver
gig waiting for him in London. If he can make it
to Heathrow in one piece.