Oil Prices Rebound After Saudi Arabia Crashed The Market, But Will it Last?

After dropping more than 80% in two years, oil prices have started to recover. But a full rebound remains uncertain, stuck at the crossroads of a worldwide recession and the House of Saud’s suicide mission to keep pumping more oil.

In February 2016, the oil industry and energy dependent countries panicked as oil prices collapsed from a high of $145 per barrel to a low of $27 per barrel. Market analysts speculated that the collapse in oil prices would cause unrest in oil-rich countries and whiplash investors who had tossed their fortunes into speculative US shale oil fields.

Since then, oil prices have rebounded considerably. Resting just below $50 per barrel, many hope the catastrophe has been averted. But with market turmoil surrounding the recent Brexit referendum potentially sparking a global recession and the Saudi Kingdom’s pledge to continue flooding the market, many risks remain for the oil industry.

The best case scenario may be that we are now seeing a new normal, with oil prices hovering between $40 and $60 per barrel for the foreseeable future as market oversupply comes off of the market due to a wave of bankruptcies in the US shale industry. Since 2015, over 130 US oil and gas companies have filed for bankruptcy, with US and Canadian oil production sagging by over 2 million barrels per day.

The question remains whether the crash was due to a surge of new supplies that came onto the market during the boom time by countries like the US and Canada, or if the collapse in prices was part of an intentional Saudi strategy to force competitors out.

Did Saudi Arabia Crash the Market Intentionally? Likely.

In 2015, market analysts prepared for the threat of a global recession after Chinese economic data showed signs that Beijing may face headwinds in the coming years. While everybody was preparing for demand to fall, the Saudi Kingdom made a curious decision to increase oil production.

Saudi Arabia increased production by 2 million barrels of oil per day, a roughly 20% increase, with the Crown Prince demanding an additional 20% hike in oil production by 2017. Nonetheless, market watchers believed that Saudi Arabia, whose budget is based on a $66.70 per barrel oil price, would back away from pumping oil as prices started to cascade – they were wrong.

As energy analyst Marin Katusa explained on Radio Sputnik, Saudi Arabia forced US shale oil properties out of business and proceeded to purchase those same US oil sites for pennies on the dollar in bankruptcy. The Saudi Kingdom not only ravaged America’s energy renaissance, but also sought to preserve market share from Iran, no longer hindered by international sanctions in the wake of the historic nuclear deal.

On Monday, Loud & Clear’s Brian Becker sat down with Ed Hirs, the Managing Director for Hillhouse Resources, and Zafar Bangash, author of the book “The Doomed Kingdom of the House of Saud,” to separate fact from fiction on Saudi Arabia’s role in the oil price meltdown, and what to expect next.

https://www.spreaker.com/embed/player/standard?episode_id=8845868&autoplay=false

Oil Prices Made a Surprise Recovery Since February – Will it Last?

“The oil market is following the path that OPEC lined out for it,” said Hirs. “If you look back at the OPEC statements in 2015, the ministers said that they would continue producing and let the attrition of supply from high cost resources slip away from the market and let the ever growing demand set the floor for the market, at which point prices would begin to increase as the excess inventory gets worked out of the system.”

Hirs explained that although the collapse in oil prices has been devastating for many countries oil-based economies, the market waves have matched very closely with what oil analysts expected, with most experts predicting a rebound to well over $50 per barrel by the end of the year.

Was this a Deliberate Effort by the Saudis to Target Rivals?

Hirs said that while it could be argued that Saudi Arabia intentionally undercut the market, a separate line of thought is that the US shale oil was the last to enter an already crowded market and failed to offer competitive prices.

In support of this secondary line of thought, he pointed to oil industry models showing that for every 1% increase in oil supply, prices fall by 25%. In his estimate, consistent with previous reports from OPEC, the world oil market is oversaturated by roughly 2%, explaining at least 50% of the collapse from the high of $145 per barrel.

Zafar Bangash disagreed with the economist’s assertions that the phenomenon was solely a matter of supply and demand, arguing that Saudi Arabia fabricated the market dislocation in order to penalize the United States and Iran over the 2015 nuclear agreement.

“The Saudis were extremely upset and frightened by the agreement that Iran signed with the P5+1 countries that led to Iran coming on board with respect to their production,” he said. “Iran is producing quite a substantial amount of oil on the market right now, so the Saudis were trying to punish Iran as well undercut American shale oil production because they see Iran as not only a challenger, but also as an existential threat to their hegemony in the Muslim world.”

“In addition to this economic war, there is a political war, and I don’t see how the Saudis can win that, and they caused a lot of economic grief for themselves as well, with their budgets running deficits for the first time,” Bangash added.

“On the one hand they have been able to undermine shale oil considerably, but on the other hand they will continue to pay the price both economically and politically.”

Russia, Syria Lead Fight To Free Raqqa From Daesh, US-Backed Forces Retreat

The Obama administration pledged to play an integral role in liberating the city of Raqqa, but US-backed forces are moving in the wrong direction and are now nearly 80 miles from the Daesh stronghold.

The Syrian Army (SAA) continued to advance on Raqqa after seizing the Taqba dam on the Euphrates River only 25 miles (40km) from Raqqa this weekend. The surge represents the first time that Syrian forces have entered the Raqqa province since 2014, when Daesh first began its terror campaign.

The SAA’s assault on the Daesh stronghold has been supplemented by unrelenting Russian airstrikes in the eastern areas of Hama province, bordering Raqqa. The aligned forces are currently situated in the town of al Tabqah, recently cleared of Daesh and which served in 2014 as a aunchpad for Daesh attacks, givens its proximity to Raqqa.

At the same time, the US-backed and Kurdish-dominated Syrian Democratic Forces (SDF) have reversed their position and refocused military strength toward recapturing the city of Manbij, in a bid to strengthen the opposition group’s position to destabilize Syria’s Assad regime.

The retreat by the US-backed SDF, which had previously been in competition with the Russian-backed SAA in a collective bid to recapture Raqqa from Daesh, presents a major strategic setback for the Obama administration, employing the dual goals of ousting Bashar al-Assad while also liberating territory from Daesh.

Financial Times reporter William Wallis wrote on Monday that by recapturing Raqqa ahead of American-backed forces, the Russian and Syrian armies would “poke the Americans in the eye in a place they have long talked of helping to recapture.”

What has been to date a productive competition could erupt into a conflict between the partners, with the two-sides sharing very different geopolitical views. Russia believes it is necessary to prop up the Assad regime, at least until Daesh has been vanquished. The United States believes it is necessary to support opposition forces and oust Assad. The US effort has often stumbled, with American weaponry consistently falling into the hands of al-Nusra terrorists aligned with violent rebel groups.

Others see the retreat by Kurdish-dominated forces as an acquiescence by American military strategists, suggesting that the US and Russia are coordinating efforts to liberate territory in Syria.

US Defense Department spokesperson Peter Cook rejected this explanation, saying “in terms of direct coordination of activities on the ground [between the US and Russia] that is not happening.”

The possibility remains that both the US-backed SDF and the Russian-backed SAA could meet in Raqqa, potentially escalating tensions between Moscow and Washington. The strategic repositioning of American troops, however, has minimized that possibility albeit at considerable expense to the Obama administration.

With both sides planning to soon descend on Raqqa and bring an end to a civil war that has killed 500,000 Syrians, Loud & Clear’s Brian Becker sat down with Zafar Bangash of Toronto’s Institute of Contemporary Islamic Thought to discuss the situation.

https://www.spreaker.com/embed/player/standard?episode_id=8723483&autoplay=false

Are the US-Backed SDF and Russian-Backed SAA Forces Cooperating?

“I don’t think there is coordination between the two sides,” said Bangash. More so there appears to be a race towards Raqqa, although the Syrian Army seems to be better placed because they have already captured al Tabqah right next to a dam on the Euphrates River, and they are trying to take control of the airport there.”

“The Syrian Army is only 40km (25 miles) southwest of Raqqa whereas the Syrian Democratic Forces, dominated by the Kurds, have headed in the opposite direction, towards Manbij, which is 136 kilometers (85 miles) away from Raqqa, so the Kurds are much further away right now.”

Bangash explained that Kurdish forces are focused on playing the long game by consolidating their own territories with a view toward having a stronger hand in future negotiations, but potentially at the expense of the United States losing the race to be the first to seize Raqqa.

What is the relationship between the US military and the Kurdish-dominated forces?

“The United States is backing the Kurds fully,” said the commentator. “There are US special forces working with them and American forces wearing Kurdish uniforms have been viewed guiding them in operations, which has been problematic for relations with Turkey who has adamantly protested this.”

Bangash explained that the United States’ willingness to support Kurdish fighters even over the protests of Turkey indicate that the Obama administration is “keen on preventing the Syrian Army from taking control of their own country” by strengthening alternate forces to ultimately weaken Assad’s control over the Syrian government.