Are the Saudis toying with oil markets?
April 5, 2016, 8:08 am

Oil prices have slid into dangerous territory once again, after remarks made by an influential Saudi prince [Xinhua]

Recent comments by a powerful royal about oil production cuts to January levels cast a dark shadow that consensus between major oil producers may not be easily reached.

Markets reacted quickly: Oil prices shed earlier gains, causing stocks in the US to tumble on Monday.

In Asia Tuesday, stocks from Japan’s Nikkei to South Korea’s Kospi to Australia’s ASX all fell as energy shares suffered a hard landing.

Last week, Saudi Deputy Crown Prince Mohammed bin Salman said that the kingdom was willing to freeze oil output if all OPEC members including non-OPEC energy exporting countries agreed to do so.

He was indirectly referring to sanctions-free Iran, which is poised to increase its daily output by 500,000 to one million barrels.

The Summit

The Saudi position – Bin Salman is also a defense minister and considered a very powerful figure in the Kingdom’s hierarchy – immediately cast doubt on the chances of success of a critical energy producers summit to be held in Qatar April 17.

And down came the oil prices.

After Bin Salman’s remarks on Friday, West Texas Intermediate Crude fell three per cent to $35.54 a barrel.

We’ve seen this before.

In February, Venezuela’s Oil Minister Eulogio Del Pino met with his Iranian, Qatari and Saudi counterparts in a bid to persuade them to agree to a summit to change output policy.

The Saudis appeared disinterested and oil prices fell.

The Saudis at the time said they would not commit to any discussion about an output cut unless Russia scaled back its production first.

Eventually, oil dipped to $27 a barrel.

Nevertheless, two weeks later, a mini-summit was held in Qatar, with a promise of more meetings aimed at stabilizing global oil prices.

The fact the summit was held at all hinted that there could – no matter how weak the chance – be some united effort to cut production.

Oil prices were predictably buoyed eventually reaching $40 a barrel.

But the current oil glut isn’t merely about energy market shares. Saudi Arabia and Iran are on opposite sides of a proxy sectarian war being fought in Lebanon, Syria and Iraq.

The Saudis, who have vehemently opposed the Iran nuclear deal with world powers, want to curb Tehran’s growing influence in the region.

At the same time, they are waging a silent war against Russia, who they say has kept Syrian President Bashar Al Assad in power.

Saudi Arabia has insisted that there can be no role for Al Assad in a future Syria.

Beyond the crises in the Middle East, oil prices are also significantly affected by the first year-on-year decrease in US demand in 14 months, says the Energy Information Administration (EIA).

Read More: The Saudi factor – theories and conspiracies

The BRICS Post with inputs from Agencies