Tuesday 26 November 2013

Oil and Troubled Geo-Political Waters

Iran, Russia, Ukraine, Turkey, Saudi, Syria - and back to Iran again

Up and Down
Initial reporting of the Iranian nuclear deal had it that the price of oil had dropped $2 on the news.  It wasn't true and in fact the price of Brent went up, slightly.  Brent has been range-bound, $100 - 120, for a long time now.  Not a tight range, but not headline-setting any more.

Russia, we gather, was one of the major players behind the Iran deal, and they certainly have no interest in a materially softer price of oil.  This DTel piece paints a pretty grim picture, and repeats the received wisdom that Russia needs an oil price of $110 to balance its budget (others have quoted a higher figure).  They remain uncomfortably stuck as a raw materials economy, despite their fervent longings to be a manufacturer: I've recorded here before that they have tried several times to sell gas and oil into the far eastern markets in packages with manufactured goods, 50:50 by value.  You can imagine where the Chinese have told them to stuff their useless trucks; and I read with amusement a couple of weeks ago that their new LNG export deal with South Korea works the other way around.  In this package, the Koreans will build the LNG ships for the Russians.  This is the sort of reality that has Putin tearing at what little hair he has.

But it's not all bad news for Russia.  They must relish the leading role they've taken with Syria and Iran (it's their back door, after all) - and what about the Ukraine !?  Their pulling out of EU accession negotiations must send the expansionist tendency in Brussels ranting up and down their luxurious corridors.  (I could wish the estimable Hatfield Girl was blogging just now; she writes interestingly on these matters.)  When will Turkey decide it's not worth the effort ?  That really would be a turning-point.

Who else is seriously long oil ?  Why, the Saudis, of course, who at the same time are none too chuffed about the Iran deal.  One particularly daft comment suggests that "Riyadh may try to 'rap America’s knuckles' by flooding markets with enough oil to puncture the US shale oil revolution. Production costs at the US Bakken shale field are around $80".  Yes, the USA is long oil as well: but I have a feeling that 'something' would happen long before the price fell that far.  There has long been the theoretical potential for a genuinely significant oil-price reversal: it is the truly epic quantities of oil reserves everyone knows are present in Iraq.  But somehow it never gets developed ...   

One also reads that the Iran deal is bad, bad news for the Syrian 'opposition'.  Assad-supporters Russia and the Iranians are now riding high and surely command at least several months of goodwill in the West  - so woe unto the enemies of Assad ?  Well maybe: but the perennial enemies of Iran are not appeased.

Sometimes, big-power diplomacy really does put the lid on a boiling pot. Remember North Korea ?  Ah yes, that's right, a few months ago they were threatening a first strike on Seoul and Seattle. It was headlines on every news channel for days and days.  And then suddenly ... nothing.  Oh, to have been a fly on the wall when the Chinese took Fat Boy to one side and read his fortune for him.

However.  When it comes to Iran, those perennial enemies probably have the means to keep the pot boiling for a while yet to come.  Price of oil on 31 December this year ?  Predictions in the comments, please.



DtP said...

I've never bought into the line that Iran are total nutjobs - sure, their leaders are in showbizness but I think their people are significantly more cultured than the Saudis could ever be. Plus, Netenyahu is getting a bit of a beasting from their Daily Wail equivalent but I guess when you're in a state of permanent election campaigning you're bound to talk bollox much of the time.

However shit this deal is, and $8bn for 6 months grace is quite pricey, the job of politicians is to prevent war and that costs hard cash. If the Saudis and Israel want to get into bed together then good, it's about bloody time. Whilst all these negotiations have been as a consequence of accident rather than design, it does appear to be a rational rapprochment based on costed and mutual self interest for a change and if Israel and Saud want to throw their toys out of the pram like petulant, spoilt, little brats after 30 years of getting their own way then diddums.

Oil price? No discernable change whatsoever - I assume the markets don't believe in optimism quite yet.

Sackerson said...

ND, are you implying that the Americans are sitting on Iraq oil as a strategic reserve?

CityUnslicker said...

$110. Easy.

I think the great game is really being played out in Iraq which, as you say, has the billions of barrels of oil reserves that actually would make a difference to world supplies. the concept of oil going down radically in price is long way off though, china and india alone could consume the entire current daily supply in 15 years time on current trends. Shale, mitigation etc will surely temper this - but the long-term fundamentals are that oil is now expensive to produce, large finds are rarer and the energy intesiveness of a growing world population is increasing. I really can't see oil ever going below $80, except in some financial panic conditions.

Elby the Beserk said...

10-1 on the Iranians are taking the piss. Rouhani is NOT a moderate, whatever the BBC and the Guardian might tell you. Nor is the boss Imam. They'll be rolling in the aisles in Teheran, I can tell you, at just how gullible the West is.

Elby the Beserk said...

And of course, Mr. Unslicker, pretty much unreported by the media, Iraq is descending into sectarian civil war again, which will be great for oil prices. It seems to me that we'd best just butt out of the middle East, as whenever we interfere and whether the motives are altruistic or heinous (usually the latter), we just make matters worse.

BTW, the opposition forces in Syria are now believed to be a majority Al Qaeda and related barbarians. Ans the USA is still arming them behind the scenes. Who would have believed that Obama was even more stupid than Dubya?

Budgie said...

"Who would have believed that Obama was even more stupid than Dubya?"

Me. By a long, long way.

The left always use ad hominem attacks (@Dubya is stupid'; Thatcher is a harridan) when they lose the intellectual argument.

Budgie said...

Oil price? In the range $100 - $120 as CU said.

Thud said...

Budgie, ditto.

gsd said...

If the Saudis really want to "rap America’s knuckles" I imagine that they will stop trading oil in dollars and use a basket of world currencies instead.

As for the price guess - if the West doesn't get sucked into Syria, no great change. If it does, then +$5/barrel.