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Oil prices are on the decline. and it’s the middle of November. Prices are down over 20 percent since October. which represents the sharpest fall since 2015. What happened between now and September when most analysts were forecasting a price spike on the heels of Iranian sanctions?
In September. it looked like the U.S. was taking a non-negotiable stance on giving waivers to buyers of Iranian crude. Fast-forward to early November. and the U.S. granted eight countries waivers to purchase Iran’s oil.
The sudden shock of almost 1.5 million barrels of oil coming off the market would put a constraint on supply and take prices higher. but that never materialized.
Saudi Arabia and Russia’s plan to raise prices seems to be in jeopardy. In June. the Organization of Petroleum Exporting Countries (OPEC) raised production. but only slightly. In the four months that followed. the price had a good ride upward. but that ended in October.
The decision to keep Iranian barrels on the market for countries like China and India. and U.S. shale oil production continuing to surge. hitting 12 million barrel per day. has resulted in oversupply and downward pressure on price.
Without action on production. it is unlikely for Russia and Saudi Arabia to see higher prices given the current supply and demand outlook.
On Sunday. Saudi Oil Minister Khalid Al-Falih announced Riyadh’s plans to cut crude exports by 500.000 barrels a day next month and hoped OPEC and Russia would follow suit.
The move makes sense from Saudi Arabia’s position. Watching the oil price go from the $70s into the $60s. it’s hard not to imagine petro-dollar-dependent countries wanting to reverse the price decline.
What happens when OPEC meets in December will be closely watched. Since Sunday’s comments. Trump took to Twitter with calls on OPEC to keep prices low — the question is will they heed his Twitter threats?
Saudi Arabia’s in a more precarious position for this upcoming OPEC meeting. The gruesome killing of Saudi journalist Jamal Khashoggi and the kingdom’s role in the humanitarian crisis in Yemen are both drawing sharp criticism from the West.
The U.S. Treasury decision to sanction 17 Saudis for the murder of Khashoggi and the recent decision by the military to stop aerial refueling of coalition warplanes involved in the war in Yemen are signs the U.S. is taking a harsher stance toward the kingdom.
The passes on acceptability Saudi Arabia has come to expect from countries like the United States and the U.K. are starting to shift. and this may mean the world’s historical swing producer will need to restrain its desires to push prices upward lest it risk the wrath of more punitive responses.
Regardless of risk. if prices remain low. one can expect Saudi Arabia and OPEC. and it’s plus one. Russia. to reign in production come December. Doing so raises the stakes for how the Trump administration will respond. Trump will surely use his favored weapon of communication. Twitter. to share his disdain and issue threats of retaliation.
What is clear is the Saudi-Russia relationship will face new hurdles as they try to coordinate around managing the price of oil. Both countries face emerging challenges to their disregard for the rule of law. human rights and transparency.
The December OPEC meeting may offer new insights into the stability of the relationship and whether both countries can remain as cooperating partners. In a few weeks we’ll know the answer.
In the meantime. the beneficiaries of today’s lower oil prices are oil importing countries. which were feeling the financial pinch of $70-plus oil prices. Drivers in the U.S. can also be grateful for the lower prices.
As we approach the busiest travel weekends in the United States. families driving for Thanksgiving will have some relief when they fill their tanks.
