Saudi Arabia’s oil minister welcomed Iran back to the international market pending the removal of sanctions next year. At a rollicking OPEC meeting Saudi Arabian officials downplayed the risk of excess supply driving down prices, suggesting the nation will continue to produce at maximum capacity regardless of price. For its part Iran said it’s all but ready to start cranking out four million barrels of oil a day and other producers are simply going to have to cut production if they want to support prices.
The easiest way to reconcile the conflicting messages is to assume any agreement between the Saudis and Iran was unmitigated nonsense according to Dan Dicker of oilprice.com and author of Oil’s Endless Bid.
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“The sounds that the Saudis are making about being so happy to see the Iranians back in the international community is a bunch of PR nonesense,” Dicker scoffs in the attached clip. Making the observation that the only thing weirder than Saudi Arabia and Iran making nice is that Israel is in on the deal, Dicker suggests Saudi Arabia is likely to attempt to manipulate both oil prices and US international policy by ratcheting back production. Saudi antipathy towards the Iranians is such that they have to do something and restricting production is the only available leverage.
When the deal was announced the knee jerk reaction was to trust the Saudi’s commitment to unrestrained production and sell Brent crude. Once traders had a moment to reflect, prices started rallying and haven’t stopped since.
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“All of the geopolitical risks remain strongly in place and all the risks therefore to the oil market remain strongly to the upside,” Dicker says.
What impact will OPEC’s ongoing unrest have on the US and its benchmark WTI crude? Stay tuned for part 2 of Breakout’s conversation with Dan Dicker.
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