Wednesday 10 August 2016

Is Saudi Arabia up to its old tricks again?

When the thought of oil returning back into bear territory became too good to be true, the Russian Energy minister Alexander Novak swooped in to rescue deflated expectations by coyly suggesting that his nations were open to negotiations if fresh talks were to begin regarding the issue of oil production freezes but went on to say that elevated prices would likely provide producers with relief rather than resolve at this current time.

Prices immediately rose on the news with many speculating that OPEC might use an upcoming informal meeting to be held in September to thrash out the possibilities of it happening with intentions of finding a better approach  dealing with the matter than they had done previously when not all members, namely Iran, could be drawn to agreeing to conditions set down.
But the prospects of this occurring in the not so distant future fell faster than a stone in water after de facto OPEC leader Saudi Arabia announced with much pleasure it had pumped out a record amount of oil for which it says was intended to cater for an increase in summer demand in the Middle East.

Riyadh may think this limp excuse may be useful in misleading the oil market relating to a downturn in prices where concerns have raged over demand being outstripped by abundant supply by falsely believing oil prices have bottomed, it does more to show the factionalism that cuts deep within the organisation following a series of disagreements as to the course of action needed to fight new competition.

This kind of statement that's hurriedly found its way into the news promptly after Alexander Novak comments of a possible freeze indicates Saudi Arabia's true feelings towards the issue. If it were to be brought up again it'll refuse to acknowledge a problem as it had done prior to its involvement that happened only because the Arab kingdom's finance's had suffered drastically as a result of the slump.

It's clear that Saudi Arabia's plan to rid the oil market of US shale gas producers is not one it sees itself warding off in the short term but rather a much  bigger threat that necessitates the argument for continuous attacks aimed reducing the profitability of their ventures, the most profound strategy being a deliberate effort to flood the market with cheap oil.

The news shouldn't be seen on the face value of it but rather a signal that tensions are rising amongst OPEC members again and possibly an indication that we'll see weak oil prices going into the end of the year.
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