Who will balance the oil market, that is the question?


Surprisingly, oil traders have changed their behavior in the Q2 this year. However, professionals were not taken by surprise. The Qatar-Gulf crisis and Saudis new investment fund have been sending signals to keep our eyes opened.

Qatar-Gulf crisis, the third one since 2000.

The atmosphere of the collaboration and mutual efforts of OPEC and its allies to reach “a healthy market” till 2020 was gone with the wind from Doha. The same Doha, the Qatari capital, hosted the OPEC meeting on April 17. Also Russians participated in the debates regarding cut-off. However, this meeting disappointed the markets, since the output deal failed by reason of the disagreement between Saudis and Iranians. Meanwhile, Qataris showed hospitality and loyalty to the Cartel.

Two months later, the OPEC members from the Gulf have cut ties with Qatar, accusing the state of sponsoring terrorism and close relationship with Iran. Doha gave the cause for the accusing by paying more than $900 million for returning hostages from Southern Iraq and providing a corridor for humanitarian aids and safe evacuation of Syrian civilians. Riyadh and Abu-Dhabi were distressed by the sum. Saudis consider Qatar as a satellite compelling Qatar not to act by its own. Nevertheless, since 2000 Riyadh had removed the ambassador from Doha twice, the current crisis is the third one. This crisis has blossomed thanks to the Trump’s blessing; the U.S. president has criticized Iran and the partnership with the Ayatollahs in his speech while participating in the Riyadh summit this May. So here we are: the richest country per capita is passing through Anti-Qatar sanctions. However, Qatar National Bank has seen no significant outflow of deposits, according to Al-Jazeera.

Since July 2014 the oil market has learned to react to the news from the Gulf as soon as possible by dropping the price per barrel. Why? Because the oil kingdom constantly leads the market down to dislodge competitors, first of all those with new technologies. The traders recognize the logic of the Saudis behavior. The Gulf troubles always result in market instability, therefore purchasers get used to wait for better bids reconsidering the contracts.

The Public Investment Fund of Saudi Arabia instead of petrodollars

The new investment strategy of the kingdom has been introduced by Deputy Crown prince Mohammed bin Salman in April 2016. Since the previous spring Riyadh has been looking for the safe, secure and profitable investments in Asia and Silicon Valley. Trump’s Administration welcomed the Saudis money in the USA; the oil princes feel better with the president Trump than with Barak Obama, who is blamed for the deal with Iran, the enemy of the kingdom. Thus, this May the kingdom’s sovereign wealth fund agreed to collaborate with Blackstone Group LP from New York City. The group purchased BioMed Reality Trust Inc, several real estate investment companies, stakes of Hilton Worldwide, Biomet, Versace etc., etc. This summer Blackstone Group LP gets started taking care of $20 billion from Saudi Arabia. T An agreement between the U.S. and Saudi Defense Ministry for a package of about $110 billion will be the next step. The new program of cooperation attracts $380 billion of the Saudis Money.

Therefore, Riyadh has no plans to intensify its oil output. The battle for the oil market lost the priority as a yesterday trend for the moneymakers. The market is still important, however Riyadh does not associate the future entirely with oil trading and will not fight for higher prices per barrel. OPEC members outside the Gulf are still crying their hearts out for higher prices and petrodollars to their budgets.

The shale oil

As the president Trump told us, “America first”. Thanks to the slogan, the new Keystone XL pipeline is at work. According to Los Angeles Times, judges still reconsider the permission of Trump’s administration to operate the pipeline and insist on additional environmental analysis. Sounds good from the ecological point of view, while the oil is flooding the tubes.

American shale oil is replacing the easy oil from OPEC and its allies. Inventories of U.S. crude regularly increase against expectations; however, the last report from the U.S. Energy Information Administration showed minus 1.7 million barrels per week. Meanwhile, last week, the 22nd week of adding new rigs to pump oil in a row, 6 rigs restart pumping. At the moment in the U.S., 747 rigs are drilling like in April 2015. This is recovering after the Saudis intervention to the oil market; the intervention was intended to ruin and strangle the high-tech competitors from sea to shining sea. More rigs – more oil output we will get next week. The average daily input of U.S. crude oil reached 17.3 million barrels the previous week. So the prices hit six month lows under the pressure of the “America first” slogan and the Saudis reconsidering the oil market according to the new investment policy and complicated development of the situation in the Gulf.

WTI lost 2.4%, Brent became cheaper by 1.6%. Oil is loosing value for four weeks in a raw freezing at the end of the Friday trading session at $44.70 (WTI) - $47.30 (Brent).

Who will balance the market, that is the question? If anyone is in power to comfort the oil market these days.