On Journalist Deaths and the Price of Oil

On Journalist Deaths and the Price of Oil

by | published October 18th, 2018

Next week in Riyadh, Saudi Crown Prince Mohammed bin Salman (MBS) is having his Futures Investment Initiative (FII).

Dubbed the “Davos in the Desert,” the extravaganza is meant to showcase the dramatic plans for both Saudi internal development and the kingdom’s foreign investment priorities.

Those plans are encompassed in “Vision 2030,” designed by MBS to employ the Saudi Public Investment Fund (PIF). That plan intends to diversify the Saudi economy and move massive amounts of foreign investment into the country, at the same time weaning revenue flows from a dependence on crude oil sales.

The FII has morphed into what is now an annual three-day event, and is supposed to rival the Swiss meeting each January at Davos in the global market, financial, and investment leaders it attracts.

However, while the conference is still being held this year, many of the outside luminaries have decided not to attend.

And for one very serious reason…

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The Shot Heard ‘Round the World

The Istanbul murder of Saudi dissident journalist, Washington Post columnist – and U.S. resident – Jamal Khashoggi has precipitated a major crisis.

While a White House attempt to come up with a joint U.S.-Saudi line on what happened – one that requires the Saudis to acknowledge complicity while pinning the blame on “rogue elements” and insulating MBS personally – the criticism (and, in some cases, outright condemnation) mounts.

Despite the current climate in which crude oil prices remain sluggish at just about $80 a barrel internationally – using the London Brent benchmark rate as the main yardstick in daily crude trades – dominant indicators point toward those prices rising.

As I have discussed on several recent occasions here in Oil and Energy Investor, prices will be pushed up for the following reasons:

  • The confluence of an already acute decline in exports from Venezuela, Nigeria, and Libya,
  • A limit on how much crude can be shipped out of a robust U.S. production market,
  • Russian inability to ramp up sustainable production much beyond present levels,
  • And the impending slash in Iranian exports once full U.S. sanctions hit in less than three weeks.

Trump has attempted to jawbone the Saudis into increasing oil production, thereby reducing the cost of refined oil products (remember, as we approach a critical midterm election, the price of gasoline at the pump “votes”). And the Saudis have complied.

Yet my figures continue to show at least a 3.3 million barrel a day loss from the combination of declining export factors, with excess OPEC-wide excess export capacity coming in at only about 2.8 million barrels a day. Some 60% of that additional capacity is Saudi.

Here’s where matters may get dicey for the energy sector…

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How a Murder Could Impact Oil Going Forward

There is pressure building to hold MBS personally responsible for the murder.

Individuals close to the crown prince have been implicated.

It borders on the impossible that some hanger-on would kill Khashoggi in the hopes of ingratiating himself with MBS without the heir’s explicit instructions. Saudi culture just doesn’t work that way.

Officially, the U.S. is allowing Riyadh a few days to “investigate” the death.

For his part, Trump has been remarkably noncommittal, emphasizing how much in U.S.-produced armaments Saudi Arabia buys.

But my Saudi contacts are indicating that the stakes are much higher.

They tell me that, unless there is a strong move from Washington to defend MBS, Riyadh is threatening to cut oil exports and spike prices even higher.

And of course, there are other dimensions also afoot.

Turkey, whose intelligence service has provided extensive (and gory) details on what happened to Khashoggi at the Saudi consulate in Istanbul, has aligned with Moscow and Teheran in opposition to the U.S. sanctions against Iran.

That triumvirate may well move to benefit from the changing dynamics in the oil markets from any reaction from Saudi Arabia.

Therefore, what happened to Khashoggi may well have a major impact on the price of oil.

And it’s something that I’ll be keeping a very close eye on moving forward.



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