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July 3, 2018
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"Saudi, Inc." is now available! Order your copy from Amazon or Barnes & Noble. Signed copies are also available from the San Marco BookstoreAudio book and Kindle editions are available as well.
 
In This Newsletter

1) Guest Podcast: Saudi, Inc. on America Trends  (America Trends)
2) Energy Week Podcast (Global Energy Media)
3) Quoted in The Wall Street Journal: "
To Head Off Rising Crude Prices, It May Take More Than Calls for More Oil" (Wall Street Journal)
4) Don't Panic, Gas Prices Aren't Really Spiking (Forbes)
5) The Real Reasons Oil Prices Are Soaring (Investing.com)
6) Oil Prices Climb On News Of OPEC Agreement (Forbes)
7)
Russia is both friend and foe to Middle East's major powers (Arab News)
Listen to "Episode 31 - Recap of OPEC/Non-OPEC meeting | Patrick DeHaan with GasBuddy" on Spreaker.

Don't Panic, Gas Prices Aren't Really Spiking
(also on Forbes.com)



The Real Reason Oil Prices Are Soaring
(also on investing.com)

Oil prices are surging. But the reasons have less to do with OPEC's oil production increase, announced last Friday, and more to do with not as prominent catalysts.

Though oil prices moved decisively higher after OPEC's announcement at the end of last week, with Brent crude jumping about 3% and the U.S. benchmark WTI gaining more than 4% on the Organization of Petroleum Exporting Countries (OPEC) decision, the additional gains are being fueled by two specific drivers:

  1. OPEC's original announcement was vague and deceptive. On Friday the cartel made it appear as though the production increase would be less than the market had expected. OPEC may have been forced to present such an image on Friday in order to satisfy Iran’s political considerations.
  2. A key supplier of Canadian crude oil to the United States, Syncrude, announced on Friday that crude oil exports of around 300,000 bpd to the U.S. would be halted for the remainder of June as well as for all of July, at least. The company suffered a power outage last week and is working to fix the faulty transformer at its Alberta facility.

A closer examination of the timeline for the OPEC announcement shows that the much-focused on Friday release only broadcast an incomplete version of the agreement. The following day, representatives from Russia, Kazakhstan, Azerbaijan, Oman and other countries joined OPEC to negotiate a larger agreement on production quotas for the remainder of 2018. It was actually only then decided that the group would increase oil production. 

Although the group is technically targeting an increase of 1 million bpd, many analysts expect the increase will only be about 600,000 bpd, because some countries (such as Venezuela and Angola) are currently incapable of increasing beyond their current production numbers.

Indeed, production numbers from Venezuela are expected to continue dropping. Short-term production from OPEC member Libya is also in jeopardy as fires last week destroyed a number of Libya’s export storage tanks and reduced its export capacity by 450,000 barrels.

Russia and OPEC made clear at the Saturday meeting that countries with spare capacity would be tasked with increasing production to replace barrels lost from Venezuela and other countries. The Joint Ministerial Monitoring Committee (JMMC) will allocate those increases to Saudi Arabia, Russia, the UAE, Kuwait and others as necessary.

Even though Saudi oil minister Khalid al Falih said that the group would be careful not to increase too quickly and flood the market, Saudi Arabia has already announced that it will produce 10.8 million bpd in June. That would be a record amount of production for Saudi Arabia.

Aramco, the Saudi national oil company, recently revealed that it plans to produce 11 million bpd in July. Saudi Aramco's CEO Amin Nasser clarified that Aramco, which produced 10.01 million bpd in May, can generate about 12 million bpd, if needed. (Keep in mind that Saudi Arabia’s domestic oil consumption always spikes in the summer).

Both Brent and WTI dropped when futures markets opened Sunday night. However, because of the Syncrude outage, WTI fell much less sharply than Brent. This has tightened the spread between Brent and WTI, which had grown as much as $10 per barrel earlier in the month.

The Syncrude outage means that the price of the Canadian benchmark, West Canadian Select (WCS), should rise during the coming weeks. It had been selling at a significant discount.

We should also expect to see reports that oil production in the Permian (in Texas) is slowing, as some companies cut production due to transportation bottlenecks. Pioneer Resources (NYSE:PXDannounced that it plans to shut wells in the Permian within the next 4 months. Other companies are likely to follow, because there is a paucity of pipeline capacity. The overall growth forecast for shale oil-producing regions of the U.S. is still strong, but some companies will struggle in the short-term as they face transportation shortages.

Meanwhile, traders should pay attention to the developing situation with Iran. On Tuesday, the Trump administration pushed big buyers of Iranian crude, primarily Asian countries, to halt all purchases of Iranian crude oil before sanctions come into full effect in November.

This is significantly harsher than U.S. policy in 2012, which granted waivers to Asian importers of Iranian crude. The 2012 policy allowed Asian markets to continue importing Iranian crude as long as they progressively reduced the amount they imported. The current policy could keep crude oil prices elevated this summer even as Saudi Arabia, Russia and other producers ramp up production.

Oil Prices Climb on News of OPEC Agreement
(also on Forbes.com)


Russia is both 
friend and for to Middle East's major powers

In geopolitics and in business there are no friends, only interests. Every country or business is looking out for itself and protecting its own interests.

Russia is an extreme example of this. In the last decade — and particularly in the last couple of years — Russia has established itself as an influential force in the Middle East, often playing friend and foe to the same country. Most major powers in the region have found Russia to be both an ally and an opposition at the same time.

Russia has been one of Iran’s only allies in the last few years, but Russia also contributed to the greatest threat to the Iranian regime. As Reuters reported last year, the relationship between Russia and Iran was “greatly strengthened by both sides’ involvement on the same side of the war in Syria.” Iran has bought weapons from Russia in recent years, including the S-300 missile defense system. After the Joint Comprehensive Plan of Action was settled in 2015, and before international sanctions against Iran were even lifted, Iranian Maj. Gen. Qassem Soleimani’s first trip was to Moscow to coordinate with its apparent ally.

Yet, Russia looks out for itself. Last week, Iran was dreading an OPEC decision to increase oil production. An increase in oil production quotas would lower prices, while Iran desperately needs high prices until the new US sanctions come into play in less than five months. On Friday, at the meeting in Vienna, the OPEC oil ministers did not settle on an increased production number, though they hinted that production would increase. Oil prices rose, and Iranian oil minister Bijan Zanganeh sat for a face-saving interview with Bloomberg. Then he promptly returned to Tehran. The next day, OPEC and Russia agreed to a significant oil production increase — exactly what Iran did not want. With the value of the Iranian riyal plummeting and the Iranian economy faltering, the Iranian regime needed higher oil prices. Russia, along with OPEC, said no. 

Russia has essentially the opposite relationship with Saudi Arabia. The two countries are well aligned when it comes to their business interests. Saudi oil minister Khalid Al-Falih and his Russian counterpart Alexander Novak are often seen together, touring each other’s oil facilities or meeting to discuss the future of oil and gas. The two countries are making investments in each other’s oil and gas assets and closely coordinating production policy. Over the last year-and-a-half, Saudi Arabia and Russia have together managed to influence the oil market by maintaining enough unity in a coalition of OPEC and non-OPEC oil producers.

When it comes to geopolitics, however, Russia and Saudi Arabia are not on the same side. Moscow has helped supply Iran’s military, while Riyadh has opposed the Iranian regime. Russia has also provided soldiers, weapons and aircraft to bolster Syrian President Bashar Assad. In fact, Russia is Assad’s biggest backer and a major reason he is still in power, while Saudi Arabia opposes Assad’s regime and his attacks on Syrian citizens during the seven-year civil war.

Though Russia has supported the Assad regime militarily and also appears to support Iran’s military, it has recently given a green light for an enemy of both Syria and Iran to attack a major terrorist asset of those two countries. Over the last year, Israeli Prime Minister Benjamin Netanyahu and his top deputies have been meeting regularly with their Russian counterparts. Moscow may be protecting Assad with its own military, but this spring it also allowed Israel to strategically bomb certain military bases in Syria used by the Iranian military.

Meanwhile, Russia does not support Israel publicly on the international stage. It does not vote in Israel’s favor at the UN. When the US withdrew last week from the UN Human Rights Council to support Israel, Russia immediately sought to take its place. Russia is clearly not an ally of Israel, but at times it supports Israel’s decisions.

The best example of Russia’s opportunistic behavior in the Middle East is its relationship with Turkey. The relationship between the two countries hit its nadir in modern times in November 2015, when Turkey shot down a Russian fighter jet operating in Syria. But, since then, the two countries have been building an alliance. Turkish President Recep Tayyip Erdogan is a burgeoning strongman who just this week won re-election. He seeks the support of powerful allies like Russia. And Moscow also needs Turkey, because it controls the only exit from the Black Sea to the Mediterranean. To access the Mediterranean, Russian ships must pass through the Bosporus and the Dardanelles, two extremely narrow waterways with Turkey on each side. So Russia acts friendly towards Turkey.

But Russia is not an ally of Turkey, Iran or Syria. Yet it will use its influence throughout the Middle East to obtain whatever advantage it can.

About Ellen R. Wald, Ph.D.

A consultant and columnist on geopolitics and energy markets, Ellen writes regularly for several major publications. She is the president of Transversal Consulting and an adjunct professor of social science at Jacksonville University where she teaches Middle East history and policy classes. 
 



Dr. Wald is a frequent commentator on radio and television programs. She offers discussion and analysis of contemporary energy issues, with special emphasis on the Middle East. To arrange a media appearance or to discuss her consulting services, please contact her through her website.
 
About "Saudi, Inc."
 
“Saudi, Inc.” presents the history of Saudi Arabia through the central figure of Aramco, the oil company that brought riches, success, and regional dominance to its ruling family, al Saud.  It will be released in 2018, as Saudi Aramco prepares to launch its much-anticipated IPO, expected to be the largest in history with a possible valuation of up to $2 trillion. The book debut will also come amid the Kingdom’s massive investment in its Vision2030 plan for economic diversification; the rebirth of an economic and diplomatic relationship with the U.S. worth hundreds of billions of dollars in investment in both directions; and preparation by the next generation to take leadership positions in the Kingdom – transforming society, business, and the state.
 
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Photo of the Week
 
Reporters interview Saudi oil minister and OPEC President Khalid al-Falih before the November, 2017 OPEC and Non-OPEC joint meeting
Don't forget to order Saudi, Inc. on Amazon or Barnes & Noble
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The information in this newsletter is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose. The information contained in or provided from or through this newsletter is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information on this forum and provided from or through this forum is general in nature and is not specific to you the user or anyone else. You should not make any decision, financial, investments, trading or otherwise, based on any of the information presented on this forum without undertaking independent due diligence and consultation with a professional broker or competent financial advisor.

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