Saudi Arabia executes on oil price war
364 days ago we published a Weekly Volume titled The Orchestrator of Oil’s Collapse in which we described, in detail, Saudi Arabia’s oil war and its motives to crush the price of oil and its economic competitors. Click here to read the report in case you missed it.
Almost exactly one year later, many of our predictions have come true… the Saudis have carried out geopolitical initiatives akin to a sociopathic economic hitman.
In January of 2015, we wrote that:
“Saudi Arabia, the largest producer in the OPEC cartel, and the highly distrusted ally of the West, is the driving force behind this oil price collapse.”
Think of how many OPEC meetings in 2015 ended with the Saudis increasing production or demanding all major oil producers (including producers outside of OPEC) cut production before they would consider slowing output. At any one of these meetings, the most recent on November 27th (in which OPEC held production unchanged), Saudi Arabia could have chosen to cut production – which would have sent oil prices substantially higher overnight. The Kingdom is, after all, by far the largest exporter of oil in the world and is forsaking billions of dollars in the current price environment.
Instead of helping many major economies (including some of its so-called allies), the Saudis have tried to impose their will on OPEC, Russia and virtually every western oil producer, as we predicted they would. They’ve forced potential bankruptcy upon many western oil producers, both conventional and shale.
In our January, 2015 report on the global oil sector we wrote that:
“By attempting to keep oil below $60 per barrel in 2015, the Saudis can, at the very least, pause America’s shale revolution (which would keep the U.S. as a large customer and almighty protector), drive Russia into a severe recession (if not a depression), and likely end Iran’s nuclear development program unless they also want to go into a depression.”
Almost all of these events have happened (Iran’s nuclear program is in question).
Houston-based oilfield services company Baker Hughes reported the U.S. rotary rig count declined to 698 for the week of December 31, 2015. The total count sits at 1,113 rigs, equal to 61.5% lower than last year.
WTRG Economics reported that, “Rig count remains at the lowest level since the week of September 10, 1999 when there were 690 active rigs.”
Take one look at that chart above and ask yourself if the Saudis are winning. Dreams of America remaining the world’s largest producer of oil are ending very quickly. The shale revolution has been subdued.
Just this past week the U.S. lifted a 40-year ban on oil exports. The result? Some grumbling about the potential of exporting from Alaska to Asia, but in this price environment there is no chance of anything substantial happening. Meanwhile, Saudi Arabia announced on Friday it was considering taking Saudi Arabian Oil Co., or Aramco, the world’s largest oil producer, public.
Bloomberg reported, “The company could be worth anything from $1 trillion to upwards of $10 trillion, which would make it the most valuable company in the world…”
While the Saudis are reminding the world just how important they are (or how important they think they should be), this shines light on the fact the Kingdom is bleeding cash in this low oil price environment and is seeking ways to increase access to capital. The Saudis cannot run deficits forever and, given their leadership’s penchant for public executions, have to keep their people quiet/happy via expansive social programs.
Saudis crush petro-currencies in oil price wars
Russia has remained in recession for almost two years. Despite recent data suggesting economic
improvement, the latest crash in oil prices will prevent robust growth from taking hold. Russia’s troubles were explained in a November 23rd Forbes article titled Oops, Russia Recession Not Done Yet:
“…Russia’s fourth quarter GDP numbers are sure to show an economy still in decline.”
With foreign investment drying up, even Canada, which is not nearly as diversified as the U.S. economy, is feeling the heat as it fights to stay out of recession. The Saudis‘ actions have negatively impacted hundreds of thousands of workers tied to Canada’s oil patch.
Much of Canada’s oil is known as Western Canada Select, and it traded as low as US$19.81 per barrel last week – an all-time low since tracking began in 2008, according to the Financial Post. This is a blend of oil that comes from Canada’s oilsands and trades at a significant discount due to the extensive refining process required. At current price, it’s virtually uneconomic for almost every producer in the country.
Although American, Russian and Canadian producers are viewed as competitors to be knocked off, Iran is the Saudis’ enemy it has its sights squarely on. This escalating rivalry could set off a fuse that sparks nation to nation violence in the Middle East unlike anything we have seen since the start of the Iraq War…
Saudi Arabia vs. Iran: Oil Price Centric to Middle East Hegemony
With U.S. sanctions lifted, the Saudis are trying to stoke the flames of tension with Iran to make them an irrelevant player once again. The sanctions imposed on Iran by the U.S. years ago gave the Saudis 
a very comfortable holiday, but now they’ve got the post-vacation blues with Iran ready to enter the global market once again.
While their hate for one another goes back further than any of us have lived, hostilities between the two nations reignited years ago when the Iranians formed a quasi-coalition (mainly with Venezuela) to lessen OPEC oil trade in U.S. dollars. Saudi Arabia, likely from direct U.S. orders, stopped that movement dead in its tracks. After a recent OPEC meeting, their new economic fight became evident. Both nations publicly, via global media outlets, defiantly scolded each other while refusing to cut production.
And then, in a very controversial move, the Saudis executed over 40 people to ring in the new year, one of which was a highly revered Shiite cleric Nimr al-Nimr who has the strong support of Iran’s largely Shiite country. The cleric dedicated his life to fighting human rights violations by Saudi Arabia’s leadership.
This execution sent the Shiite majority Iran into a flurry of rage, eventually leading to Saudi Arabia’s embassy in Tehran being lit ablaze. It also ensured tensions between these two nations would prevent any possible production cap deal via OPEC that may have reversed the downward slide in oil prices.This hurts Iran far more than Saudi Arabia…
Geopolitical tensions are all around us; and when they snap, trillions of dollars can be lost globally.
On Wednesday night, Saudi Arabia was blamed for an airstrike which damaged Iran’s embassy, and injured personnel, in Yemen where a shadow war between the Saudi-backed Hadi (radical Sunni) and the Iran-backed Houthis (radical Shiite) has been raging for years.
So as the Middle East boils, Saudi Arabia is attempting to deal a painful death blow to its many economic adversaries, including the U.S. (a supposed ally), Russia, Iran and even Canada. And, if it should work its way into a corner, the ace up Saudi Arabia’s sleeve is its unmatched ability to increase the price of oil.
The New York Times reported in late-2014,
“While Saudi Arabia, Kuwait and the United Arab Emirates have each stashed away hundreds of billions of dollars in savings to buffer the effects of lower prices, Iran, Algeria and Venezuela, for example, will struggle to finance their government budgets at current price levels, according to a recent study by Rachel Ziemba, an analyst at Roubini Global Economics.”
Some Arab economic experts are predicting Iran’s economy will be hammered in the current oil price war as the Saudis capture market share around the globe.
Again, we warned about this in January of 2015, with a headline from our report reading:
Saudi Arabia proves its willingness to lose in the short term to gain geopolitical power in the long run
We also highlighted the Saudis’ favorable balance sheet, which indicated it had the capacity to push other oil producers to the brink:
“And Saudi Arabia’s debt to GDP ratio is less than 3%!”
Weak oil prices: Opportunity runs red
The big money is always made at the bottom – when times are toughest; when investors lose faith. WTI hit $32.10 per barrel Thursday morning and Western Canada Select fell below $20 as it became clear OPEC was in tatters and the global economy, led by China, showed further weakness.
With optimism approaching generational lows, even worse than 2008 when it comes to oil-based economies, one has to think opportunity will be presenting itself shortly in this sector.
In an interview with RT news, famed commodity investor Jim Rogers shared his current sentiment toward oil prices:
“They are definitely going to go up in the next few years because supply is going to dry up. Drilling is drying up; everything is drying up, and so you’re going to have much higher oil prices in the future.”
One doesn’t have to look far in Canada to find businessmen who’ve rolled the dice and bet big when the markets were collapsing all around them.
James Richardson & Sons Ltd. is a commodity-based enterprise and the heart of one of Canada’s most successful and richest family businesses. With a family net worth of $5.63 billion, the Richardsons ranked 10th in 2016 among all Canadians. The company has been through a few cycles, as it has been in business for 158 years…
“During the Great Depression, it ventured into financial services (now wealth manager Richardson GMP). When its original line of business (grain handling and trading) looked threatened by drought a decade ago, the private family firm bought more grain depots and loading facilities. In characteristic fashion, the company-led by fifth-generation president and CEO Hartley Richardson-bulked up its Tundra Oil & Gas subsidiary this year, buying 550 wells in its home province of Manitoba from a retreating American operator, EOG Resources. See the pattern?”
“Fortunes are made by buying low and selling too soon.”
– Nathan Rothschild
All the best with your investments,
PINNACLEDIGEST.COM
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