Last week, OPEC member Saudi Arabia announced that it would give price discounts to Asian customers for its crude oil; signalling that it will accept lower prices to maintain market share. Since this time, the crude oil price has been smashed. It’s now trading at roughly US$81 dollars per barrel. It was above US$90 per barrel last week.
As my mate Tim Dohrmann pointed out in Money Morning yesterday, the New York Times said:
‘A split among OPEC leaders about what action should be taken, if any, to halt the [crude oil price] slide.’
Well, we now know that Iran (OPEC Member) has joined the club. Bloomberg reported that:
‘State-run National Iranian Oil Co. cut official selling prices of its crude to buyers in Asia for November’.
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When was the last time that you heard OPEC members selling oil at a discount? OPEC was set up to keep the oil price high to maximise profit margins.
Times are certainly getting interesting.
Late last month, I wrote an extensive report uncovering the truth behind the Middle East conflict in Diggers and Drillers. My mate Greg Canavan, Editor of Sound Money Sound Investments, talked about this situation in Money Morning yesterday.
This is a serious political conflict over money and power. This situation is only getting worse by the day. It’s highly likely to blow up soon. And by soon, I mean next year.
Adding to this, Western economies are economically weak. I’ve talked extensively about this to Diggers and Drillers readers, explaining why this is a driver behind rising global geopolitical conflict. When this situation blows up, the crude oil price will skyrocket to US$150 per barrel before you know it.
The next thing I’m looking for is US troops on the ground in Iraq.
I can already hear US President Barrack Obama saying, ‘The situation has gotten out of control. Iraq needs our help to eliminate ISIS.’
US senator John McCain warned that ‘ISIS is winning in Iraq and Syria, and that the United States needs to deploy ground troops if it is to stave off defeat.’ His comments were backed by one of Obama’s top military advisers, who also recommended ground troops if the current strategy against ISIS proves unsuccessful.
Adding to this, there are reports suggesting that Iraq has called for US ground support.
To date, the US White House has ruled out troops on the ground.
As you can see, this Middle East conflict is escalating. The US training and funding Syrian moderate rebels in Saudi Arabia will only make the situation worse. Whether the US government uses public or private troops, we will see troops on the ground at some point in Iraq and then Syria.
Keep in mind, the main issue at heart here is to topple the Syrian Assad elite. This mission is about politics and power. Not about combatting ISIS. ISIS, although a huge problem, is another excuse to enter Iraq and Syria.
Russia is also involved in this Syrian conflict. It has 10,000 armed soldiers in Syria and has been providing the country with arms for the past couple of years. Russia is on team Assad.
When it comes down to the power struggle, it comes down to gas pipelines. Russia is on Iraq, Iran and Syria’s team. This team is up against Saudi Arabia, Qatar, Turkey and the US.
Whilst the political struggle occurs, lower oil prices are giving Russia a bloody nose.
At the same time as lower oil prices, Russia’s economy is getting crunched by political sanctions — it’s had to tap its sovereign wealth funds to refinance its banks. Russia is now doing stress tests for US$60 per barrel oil. It wants to see what would happen to its economy if oil falls to this level.
If you weren’t aware, Saudi Arabia tried to bribe Russia to switch sides so that it can build its gas pipeline and get rid of the Assad elite in Syria. Russia of course said ‘no way’.
This recent price discounting seems to be a highly political move by the Saudis — driven, of course, by power and arrogance. It seems like it’s trying to crunch Russia’s economy as much as possible. Is this payback for not switching sides, or an act of political pressure?
I suspect Iran joining the selling brigade is also to do with politics.
Potentially, Iranian oil buyers may have said, ‘give us discounts or we will buy our oil needs from Saudi’. Keeping this simple, at the end of the day, oil is oil right? So why does it matter where you buy your oil from?
At the same time, the falling crude oil price could just reflect economics. The US is now the largest oil producer in the world thanks to shale technology. It’s no longer one of the biggest buyers of international oil.
Needless to say, Saudi Arabia and Iran selling cheap oil has sent the oil price lower. This doesn’t seem likely to change until the geopolitical conflict rises to another level.
This is a financial war over power, money, greed and arrogance.
There’s a lot at stake in the power game here.
The US backed Saudi Arabia because it wants to have a say in the Middle East in the long term. This is why, even though it’s the world’s largest oil producer, it’s supporting the Saudi’s intentions of replacing the Assad regime in Syria.
Conveniently, US airstrikes against ISIS (which was spat out of Al Qaeda, trained by the CIA) have targeted infrastructure key to the Iran, Iraq and Syria pipeline.
At the moment, Iran and Russia are sitting back and doing nothing. But for how much longer?
This region is becoming more hostile by the day. If Assad goes down, Iran is next in line to be invaded by Saudi Arabia and the US. Saudi is threatened by Iran’s rising power in the region.
Russia and Iran will do everything they can to protect the Assad regime.
As the Middle East geopolitical conflict heats up, the world has entered into a stage where all the easy oil has been found. To access what’s remaining, companies are drilling deeper than ever before and searching new frontiers. It’s exciting stuff.
New oil and gas discoveries have been found in harsh environments everywhere — the Arctic, ultra-deep waters, and even shale. Technology has made this possible.
Because of this tech, exploration risk in new frontiers is the lowest it’s been. And as we’ve seen with a number of companies recently, successful wells have returned shareholders more than 100% gains almost overnight. I’ll show you some of these finds and returns tomorrow.
My message is, don’t focus on where crude oil goes in the ultra-short term. It’s likely to go down thanks to financial wars. This is the perfect time to buy crude oil stocks.
Crude oil will skyrocket when this conflict takes a turn for the worst. I’m getting ready for this, building the best portfolio of oil stocks on the ASX for Diggers and Drillers readers.
Resources Analyst, Diggers and Drillers
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