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Saudi Arabia likely to keep oil output high

23/10/2018

The price of Oil (#BRENT, #WTI) has suffered a decline of around $7/bbl from its highs of $76/bbl earlier this month in the days since the extraordinary revelations and contradictory statements from the Saudis surrounding the murder of prominent Saudi critic Jamal Kashoggi, and looks likely to fall further. This incident has done such enormous damage to Saudi credibility that it might realistically take 30 years to recover. The fact that States engage in this sort of behaviour is not really a surprise, but few have managed to bungle the leaking of the details quite so spectacularly as Saudi Arabia. Being a nation with massive natural resources is fine as long as you have a market for them, and the Saudis are going to find themselves backed into a corner here. The U.S., try as they might, are simply not going to be able to turn a blind eye to this, and will be under pressure to be seen to be taking a robust line against the literal butchering of political opponents. With sanctions against Iranian oil due to be enforced after November 4th, Saudi Arabia, will be keen to be seen to be a good ally of the West, and most likely keep oil production high to create the sort of reliance on their product that will make any oil-based sanctions unpalatable to the United States. Incidentally, a lower oil price also keeps Russia off-balance as the cost of production outweighs the revenue. We’d sell into any rally here as these geopolitical scenarios develop.

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