Crude Firms In The Shadow of Escalating Saudi Tensions

by Ship & Bunker News Team
Monday October 15, 2018

Rising tensions between the U.S. and Saudi Arabia over allegations that journalist Jamal Khashoggi was murdered in the Saudi consulate in Istanbul balanced concerns over weakening global demand for crude, resulting in Brent on Monday climbing 25 cents to $80.68 per barrel and West Texas Intermediate rising 44 cents to settle at $71.78 per barrel.

With U.S. president Donald Trump threatening "severe punishment" if it's found that Khashoggi was indeed killed in the consulate and the Saudis vowing to retaliate to any action against it, analysts are worried that this could exacerbate problems arising from the loss of Iran crude on the world market due to the U.S. sanctions against the Islamic republic.

Phil Flynn, senior market analyst at Price Futures Group, explained, "If the Saudis don't come to the rescue when the Iranian sanctions kick in, you're really going to be short this market, it's going to be a very undersupplied market; that was the fear that was initially driving prices higher."

Such fears weren't alleviated with news on Monday that South Korea in September stopped importing Iranian oil for the first time in years.

Other noted that while the Saudis aren't likely to follow through on their vow to retaliate depending on the outcome of the Khashoggi case, even the suggestion of using oil as a weapon undermines Riyadh's long-standing effort to project itself as a force for economic stability.

The tensions were worsened by Turki Al Dakhil, who heads the state-owned Arabiya news network and is close to the Royal Court; he wrote, "If president Trump was angered by $80 oil, nobody should rule out the price jumping to $100 and $200 a barrel or maybe double that figure."

But on Monday Khalid Al-Falih, energy minister for the Saudis, quickly countered Al Dakhil's sabre-rattling by stating, "I want to assure markets and petroleum consumers around the world that we want to continue support the growth of the global economy, the prosperity of consumers around the world."

Still, analysts are urging policymakers to tread cautiously in order not to ruin an alliance that has stretched back to the Cold War; John Kilduff, founding partner at Again Capital, worried that "I think this could escalate very quickly and oil is an obvious weapon for Saudi Arabia to use if there's retaliation against it,; if they're going to be sanctioned economically, they will make sure everyone else is going to feel pain as well."

To CNBC Kilduff added,"The possibility of the Saudis taking oil off the market are fairly low, but I wouldn't say it's an impossibility, particularly if they get their back up: that's what we saw over the weekend - the rhetoric flew, and it flew really from Mohammed bin Salmon, the crown prince.

"He's not this sort of cuddly bear that I think he's been made out to be over the past months in his ascendancy to the throne."

CNBC commentators noted that even if the Khashoggi tensions fizzle out, damage to the Saudis' global reputation remains, given that they broke a 45-year taboo against using oil as a weapon.

The hostile reaction to Trump's demand that they account for the fate of a dissident journalist also demonstrates how quickly the goodwill between the kingdom and the U.S. can evaporate: only 10 days ago bin Salmon was courting media, stating that "The request that America made to Saudi Arabia and other OPEC countries is to be sure that if there is any loss of supply from Iran, that we will supply that - and that has happened."