May 8, 2018
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Catch me on CNBC Power Lunch today from 1-3 where I'll be discussing the implications of President Trump's decision on the Iran nuclear deal.
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In This Newsletter

1) The Myth of OPEC's Dominance Over the Oil Price (CrushTheStreet)
2) Upcoming Iran Sanctions Decision By Trump Looms Large Over Oil Market (Forbes)

3) How Oil's Spoke On Netanyahu's Speech Proves Risk Isn't Prices In (
4) No Quick Fix For Aramco IPO On Saudi Exchange (Forbes)
5) 3 Key Drivers Of Oil's Current Volatility (And Why It Will Continue) (
6) Timing is everything as Trump tackles rogue regimes (Arab News)
Upcoming Iran Sanctions Decision By Trump Looms Large Over Oil Market
(also on

How Oil's Spike On Netanyahu's Speech Proves Risk Isn't Priced In
(also on

On Monday afternoon (eastern US time) Israeli Prime Minister Benjamin Netanyahu announced that the Israeli government had covertly obtained over 100,000 files and documents from Tehran that held information about a secret Iranian nuclear missile program. He presented snippets of this information to the public in an attempt to prove that Iran had violated the JCPOA when it withheld information about its nuclear weapons programs.

As he spoke, the price of oil rose. WTI reached a new high of $69.12 per barrel about ten minutes into Netanyahu’s speech. An hour after the speech concluded, WTI was back down to $68.45 per barrel. This was a clear reaction from the oil market in response to Netanyahu’s speech and the information he revealed.

Oil prices have been rising in recent weeks, in part due to anticipation of President Trump’s May 12 decision on whether to reinstate sanctions on Iran. Some analysts claim that the oil market has already taken into account the potential reinstatement of sanctions and that prices will not continue to go up if Trump decides to reinstate sanctions on May 12. They believe a decision against Iran is already priced into the market.

However, Netanyahu’s speech and the sudden spike in oil prices it caused indicate that oil markets have not yet fully priced in the impact of a decision against Iran. The potential resumption of sanctions against Iran could remove up to 1 million barrels of oil per day from the market and could increase geopolitical tensions in the Middle East. Such a decision could also cause a rift between the US and the EU. The spike in oil prices that corresponded with Netanyahu’s speech (and the following drop following the news) revealed that there is clearly more room for oil prices to rise depending on Trump’s decision.

Analysts seem divided on what message Netanyahu’s speech sent. It could indicate that the Trump administration is likely to reinstate the sanctions (effectively cancelling the JCPOA) and that Netanyahu’s revelation was calculated to provide support for that. On the other hand, it could indicate that the Trump administration is planning to continue the sanctions wavers that would leave the JCPOA in place; perhaps Netanyahu’s presentation was designed to pressure the Trump administration to change its stance.

The one fact that may mute the reaction in oil markets to Trump’s decision is timing. The President must wave the sanctions by May 12, which is a Saturday. If the President announces his decision on May 12 in the US, we will not be able to see a reaction from the oil market until futures markets open on Sunday night (in the eastern US). A knee-jerk reaction, such as the one we saw during Netanyahu’s Monday afternoon presentation, will be impossible. By the time Sunday night comes, traders will have had time to process the decision and will not be reacting immediately to the news. Of course, President Trump could decide to announce his decision earlier than May 12, and if he announces it the day before, on Friday, before trading closes, the oil market could be in for a rocky ride.

No Quick Fix For Aramco IPO On Saudi Exchange
(also on

3 Key Drivers Of Oil's Current Volatility (And Why It Will Continue)
(also on

We can expect more volatility in oil markets over the next few weeks as OPEC’s outlook and policy for the second half of 2018 come into sharper focus, the Trump administration makes pivotal decisions with regard to sanctions on Iran and we see signs of rising oil production from the United States.

The Joint Ministerial Monitoring Committee (JMMC) for the OPEC / non-OPEC production cut deal met in Jeddah, Saudi Arabia, last Friday to assess the compliance rates of participants and discuss the organization’s progress towards meeting its goals. The JMMC congratulated participants on very high compliance rates (149%) while noting that Iraq and Kazakhstan were still producing more oil than their quotas allow.

None of this seemed to matter to the oil market, which was looking for signs of whether OPEC and Russia intend to continue the production cuts into 2019. Instead of greater clarity, the Russian and Saudi oil ministers appeared to diverge on whether production cuts should continue or not.

Saudi oil minister Khalid al Falih hinted that OPEC would seek to continue with the current production cuts when he told reporters that oil inventories still remain higher than before the price crash in 2015. He said that “the inventory drawdown needs to continue,” but added, “we are not decided yet on precisely what is the target.”

He did not explain what this target would be and remained vague on how long the production cuts should continue. “The journey is still far from over and we still have a long time to go,” he said.

Russian oil minister Alexander Novak, the second most influential power in this deal, took a different tone. Before the meeting he told Russian reporters that the agreement would last through the end of 2018 but that, if market conditions required it, the group might consider relaxing some of the quotas. After the meeting, Novak told reportersthat the group might discuss the possibility of increasing production during the second half of 2018 or the beginning of 2019. Such discussions would take place at OPEC’s regular meeting in Vienna on 22 June.

Essentially the oil ministers at the Jeddah meeting gave mixed messages. Yet, this mattered little to the oil market, because a tweet from President Donald Trump took precedence. After the meeting concluded, the President tweeted, “Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!"

Despite the fact that there is very little President Trump can do to change OPEC’s actions and decisions, markets reacted immediately to his tweet. WTI futures, which had been as high as $68.29 per barrel, immediately fell to $67.50. News that rig countin the United States had increased last week by five also kept prices depressed on Friday.

By Monday, however, the market seemed to have shaken off both the President’s tweet and the higher rig count. WTI erased Friday’s losses and continued to gain steam, reaching $68.95 per barrel by Monday night. Futures surpassed the $69 per barrel mark in early morning trading on Tuesday but remained volatile.

Now that oil supply is much tighter, the market is reacting more significantly to small issues like tweets from President Trump that have no actual impact on oil markets. If these conditions continue, which seems likely at this point, we should see even stronger short term reactions to policy decisions and statements. In fact, President Trump told the press that “nobody knows” what he will do regarding Iran on 12 May.

Look for oil price movement based on speculation about President Trump’s upcoming decision on U.S. sanctions towards Iran, any news about the summit on North Korean nuclear disarmament and continued hints from Novak, al-Falih and other OPEC participants.

Timing is everything as Trump tackles rogue regimes

President Donald Trump must decide by May 12 if the United States will reimpose sanctions on Iran, and many signs indicate that he will do so. The sanctions were lifted as part of the Joint Comprehensive Plan of Action negotiated by the Obama administration — a deal that Trump has criticized often for more than two years. Moreover, recent staffing decisions made by the president have led many to believe that he will reinstate sanctions and take a hard stance against Iran. He recently appointed John Bolton, a known Iran hawk, as National Security Advisor and nominated Mike Pompeo, who also opposes the Iran deal, to be the new Secretary of State.

However, there may be one complicating factor: Timing.

In late May or early June, Trump is expected to meet with Kim Jong Un, the dictator of North Korea. From America’s perspective, North Korea poses a more imminent threat than Iran, as it already possesses nuclear weapons and is widely believed to have developed missiles capable of reaching not only South Korea and Japan, but most of the US. For Washington, the current threat of North Korea may take precedence over a future threat from Iran.

Moreover, Iran is threatening but familiar to the US. While Americans know that Iran calls their country the “Great Satan” and unjustly imprisons American citizens, there are exchanges of ideas between the two countries. There are Iranian citizens in the US and vice versa. The US has not had an embassy in Iran since the 1979 hostage crisis, but even the inflammatory Mahmoud Ahmadinejad visited the US to attend the United Nations when he was president. Most of America’s allies maintain normal, if strained, diplomatic relations with Iran. Iranian ideology and political discourse is accessible and understandable. Iran may be dangerous and antagonistic to the US, but it is not closed off.

North Korea, on the other hand, is an enigma. The young dictator Kim, who inherited power from his father and his grandfather before him, is not known by American leaders. His goals are not clear. Pompeo, currently serving as director of the CIA, recently visited North Korea for preliminary negotiations, but North Korea is still considered a “hermit nation.” That is most frightening to the US, because a country with the power of nuclear weapons and a mysterious leader with mysterious motivations is unpredictable.

The question therefore arises of how Trump’s decision on the Iran sanctions will impact negotiations with a nuclear North Korea. Part of this depends on how the upcoming negotiations with Pyongyang are shaping up. During his recent meeting with Japanese Prime Minister Shinzo Abe, Trump acknowledged that he may not meet with Kim if it does not appear that North Korea is willing to negotiate and cooperate. Yet if the North Korea summit is to happen, the Trump administration will need to create the right impression beforehand.

Perhaps the White House will think it beneficial to make a strong statement before meeting North Korea. In that case, Trump could use a tough stance against Iran to show Kim that he is serious about keeping nuclear weapons away from dangerous regimes. That would mean that Trump reimposes sanctions on Iran and effectively ends the JCPOA deal that he has been criticizing for years.

On the other hand, the Trump administration may think it beneficial to show North Korea that the US can work with rogue regimes. In that case, Trump might not reimpose sanctions on Iran next month. That would make it irrelevant if the US believes that Iran deserves new sanctions, because the decision could be predicated on a desire to send the right message of cooperation to North Korea. Such a decision by Trump would not preclude him from reimposing sanctions on Iran at a later date, but it would help him present an argument for North Korea to disarm now.

In 2002, President George W. Bush described Iran and North Korea as being two-thirds of the “axis of evil.” They represented rogue regimes that aspired to obtain weapons of mass destruction and do harm to the US and its allies. Today, Iran and North Korea are no more peaceful than they were 16 years ago. In fact, they both appear more belligerent, at least in rhetoric, and more militarily capable. Since 2002, neither country has been restrained. Now the Trump administration must take major action on both regimes in a short period of time. North Korea, which is the more advanced and immediate threat, will be watching how the US responds to Iran.

About Ellen R. Wald, Ph.D.

A consultant and columnist on geopolitics and energy markets, Ellen writes regularly for several major publications. She is a non-resident scholar at the Arabia Foundation 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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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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