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The Fear Factor Is Back For Oil

While fundamentals suggest lower oil…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Saudi Arabia's Oil Price Sweet Spot

Saudi Arabia is looking to manage the oil market in a way that would keep oil prices in the $70 to $80 band for the time being, as the Kingdom wants a floor under prices to monetize oil exports and at the same time keep a ceiling until at least the U.S. mid-term elections in November, Reuters reported on Wednesday, quoting sources at OPEC and the industry.

Early this year, Saudi Arabia was said to be aiming for oil at $80 a barrel and even higher in order to stoke up the valuation of oil giant Saudi Aramco ahead of what was hyped to be the world’s largest IPO ever.

In April, however, U.S. President Donald Trump started slamming OPEC for keeping oil prices “artificially very high”, and in the latest tweet aimed at OPEC in early July, he demanded that OPEC “REDUCE PRICING NOW!”

OPEC’s leading producer and de facto Saudi Arabia—which early this year had vowed to keep the production cut pact intact until 2018, saying that “If we have to err on over-balancing the market a little bit, so be it”—agreed in June with fellow OPEC members and the Russia-led group of non-OPEC producers part of the pact to ease compliance rates, in other words to boost production.

Then, last month reports surfaced that the Aramco IPO had been called off.

According to Reuters’ sources, even with the listing plans (probably) scrapped, Saudi Arabia aims to keep oil prices as high as it can without offending the U.S. Administration, with which it has built closer ties under President Trump. Related: The Bearish Case For Oil

“They need cash. They have plans and reforms and now the IPO is delayed. But they don’t want anyone else talking about oil prices now. It’s all because of Trump,” one source told Reuters.

The unofficial $70-80 Saudi price target for oil may have been the reason behind Saudi Arabia’s reporting of oil production over the past two months, an industry source following the Kingdom’s oil production policies told Reuters.

As Brent Crude prices were heading to $80, Saudi Arabia told the market last week that it had raised production in August, sooner than the Saudis would have typically leaked such information, according to the industry source.

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • John Michael Casias on September 05 2018 said:
    Please help the working man and woman in the world by keeping the barrel between $50.00 and $70.00 no more and no less for at least 5 years!!!!
  • David Jones on September 06 2018 said:
    Looks like I called this one. We should expect the current US government to also consider placing an effective cap on oil prices in order to stymie renewables adoption as much as possible. This might be a bit higher than what Saudi Arabia wants but the likelihood for a forced range in oil prices is quite high at this point.

    My guess would be that underlying oil extraction costs are slowly rising in general, at the same time the US industry is facing higher costs regardless due to their reserves type disadvantage and there has been no time spent over 100 dollars a barrel since prices cratered, that could provide the fossil fuel industry with financial reserves for any meaningful duration below 50 dollars a barrel.

    All in all, this is probably the least "free" market of any out there. Constantly being manipulated for the benefit of various fossil fuel interests and at the expense of the consumers and even fostering conflicts/destabilization for financial benefits or profits protection. Of course, this latest manipulation is not entirely along the affected industry true desires, showing that even just a small amount of alternatives can stabilize this market.

    Either way, the sooner the fossil fuel industry transitions away from this limited, excessively dirty and geopolitically problematic resource or is replaced by alternatives, the better. The one thing we can say about renewable energy is that every single country out there has this resource in one form or another.

    One could argue that the currently associated materials for production are focused in specific countries but history has shown that materials change as technology develops further. My guess is that after a successful transition, we will be living in a world where multiple different material combinations are used, depending on the availability.

    Associated resource conflicts will undoubtedly diminish with the transition to alternatives. The fossil fuel industry should not fight this, they should actively look to transition for a safer future for everyone on this planet.
  • Thomas on September 12 2018 said:
    Gee, this really is scary stuff.

    Who will want to go into Politics without big oil money to line their pockets, and where or where will the API go when they die, when all they ever did was Lie?

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