EMEA News
Mass Saudi Arrests Cause Oil to Surge to Two Year High and Predictions that the Next Stop is $70
The arrest of dozens of princes, government ministers, and billionaires in Saudi Arabia Monday as part of a sweeping anti-corruption probe caused oil prices to exceed a two year high, with West Texas Intermediate skyrocketing to $1.71 to settle at $67.35 per barrel and Brent to surge by $2.20 to $64.27.
The arrests, which included high-ranking officials involved with state oil producer Saudi Aramco, also prompted Roberto Friedlander, head of energy trading at Seaport Global Securities, to predict that prices will more likely rise toward $70 than retreat to $50.
Friedlander explained in an email briefing that the Saudis have drained budget surpluses and now need to return to economic growth in order for crown prince Mohammad bin Salman to survive, and the purge of powerful figures such as Prince Miteb bin Abdullah, the former head of the National Guard, appears calculated to remove opposition to bin Salman's plans.
He went on to note that "The Saudis CAN'T afford a renewed decline in prices or a decline in oil revenues," and he added that "they would certainly prefer to risk tightening the oil market too much and see prices hit $70, rather than risk letting them slip back to $50."
Tom Kloza, global head of energy analysis at Oil Price Information Service, suggested that mounting geopolitical uncertainty was encouraging the transformation from a bullish to a runaway market; and Andy Lipow, president of Lipow Oil Associates, cited the Niger Delta Avengers backing out of a ceasefire in Nigeria and the resignation of Lebanese Prime Minister Saad al-Harri as two more examples generating uncertainty: "I think [the rally is] just continued follow through on the geopolitical unease that's now filtering through the market."
Bloomberg points out that the Organization of the Petroleum Exporting Countries (OPEC) too is contemplating $70 oil, but for different reasons: the news agency states that "As oil has risen, OPEC ministers' assessments of a `fair price' for their crude have probably increased too.....and while nobody in OPEC is yet talking about $100 as a fair price, you can bet that nobody will be talking about $50 either."
Bloomberg predicts the $70 figure will be discussed at OPEC's formal meeting this month in November.
Still, while the Saudi shake-up may have been dramatic and even shocking, John Kilduff, founding partner of Again Capital, suggests that it is hardly impactful enough to make Monday's market performance anything more than a short-lived spike.
He wrote in CNBC, "Unfortunately for the crown prince, the rising prices will only invite more U.S. production, along with less compliance from other OPEC members and increased pressure from Russia to end the pact.
"That and the realization the governance situation within the kingdom is settled, for now, will combine to make this a short-lived price spike; prices will head back down, likely in time for the upcoming OPEC meeting at the end of the month."
Last week as crude approached two year highs, Well Fargo warned that historical trends suggest the current bear market for oil will last another 10 years, with WTI stuck between $30 and $60 per barrel.
