Saudi Arabia (OPEC member) recently announced sharp cuts in its crude oil sale price to Asian customers, signalling that it will accept lower prices to maintain market share.
When was the last time you heard about an OPEC member selling oil at a discount?
OPEC was set up to keep the oil price high to maximise profit margins.
Russia’s economy is getting crunched by sanctions — it’s had to tap its sovereign wealth funds to refinance its banks. Saudi Arabia has tried to bribe Russia previously to switch sides so that it can build its gas pipeline and get rid of the Assad elite in Syria. Russia of course said ‘no way’.
This recent discounting seems to be a highly political move by the Saudis —driven, of course, by power and arrogance. It seems like it’s trying to crunch Russia’s economy as much as possible.
With Saudi Arabia pushing oil onto the world market at discounted prices, crude oil prices have been smashed. Brent oil is now trading at US$91.91 per barrel. If OPEC wanted, it could cut supply and send the oil price above US$100 per barrel immediately.
In my view, the oil price could very easily slide into the $80 region in the short term.
Russia is now doing stress tests for US$60 per barrel oil. It wants to see what would happen to its economy if oil falls to this level.
This is a financial war over power, money, greed and arrogance.
Saudi Arabia is clearly trying to weaken Russia here. As I explained in the recent Diggers and Drillers monthly report, it’s clear they want to be the major player in the Middle East and dictate all terms. The Saudis are scared of Iran’s rising power in the region.
Iran is backing Iraq and Syria. It has the oil and money to this. And for the past two years, Russia has been sending weapons to Syria whilst firmly standing behind the Assad regime.
The goal of nearly every Western ally is to get rid of the Assad regime.
The US is the world’s largest oil producer; it makes no sense for it to get involved in the Middle East. In my view, Saudi Arabia said to the US, ‘if you do air strikes on Iraq and Syria we will smash oil prices down to weaken Russia’.
There’s a lot at stake in the power game here.
The US backed Saudi Arabia because it wants to have a say in the Middle East in the long term. This is why it’s supporting the Saudi’s intentions of replacing the Assad regime in Syria.
Conveniently, US airstrikes against ISIS (which was spat out of Al Qaeda and trained by the CIA) have targeted KEY INFRASTRUCTURE to the Iran, Iraq and Syria pipeline.
At the moment, Iran and Russia are sitting back and doing nothing. But for how much longer?
Russia came out and said: Obama’s ‘Two-Faced’ strategy in Syria will lead to a ‘huge escalation in Middle East & Africa’.
This region is becoming more hostile by the day. If Assad goes down, Iran is next in line to be invaded by Saudi Arabia and the US.
Don’t focus on where crude oil goes in the ultra-short term. It’s likely to go down thanks to financial wars.
But crude oil will sky rocket when this conflict takes a turn for the worst. Russia and Iran will do everything they can to protect the Assad regime.
Nonetheless, in my view, Syrian President Bashar al-Assad is a dead man walking.
Watch this space…
For The Daily Reckoning Australia