Saudis Aim to Keep Crude High As Recession, Iran Loom
- Oil prices rose after Saudi Arabia recently warned OPEC+ could cut production.
- Analysts say Saudi Arabia’s game is simple: keep oil prices high so the country can earn as much revenue as possible.
- “More market uncertainty is pushing prices higher, which is exactly what Saudi Arabia wants to do,” said Morningstar’s Stephen Ellis.
Saudi Arabia’s recent warning of a possible OPEC+ output cut sparked a rise in oil prices, which analysts said was expected given the looming threat to Saudi revenue.
Prince Abdulaziz bin Salman said on Monday that OPEC+ could cut oil production as a “false sense of security” in global markets disconnected them from fundamentals. Within days, several other OPEC members expressed support for his comments. The report also showed that OPEC+ would support production cuts if Iranian oil returns to the market under the revived nuclear deal.
In response, international oil benchmark Brent rebounded back above $100 a barrel after weeks of losses on recession fears and signs of progress on the Iran nuclear deal.
Rather than trying to get the oil market back on track, analysts say, Saudi Arabia’s game is simple: keep oil prices high so the country can earn as much revenue as possible.
“More market uncertainty has pushed prices higher, which is exactly what Saudi Arabia wants to do,” said Morningstar utilities and energy analyst Stephen Ellis. “Saudi Arabia does appear to be more worried about a recession, which will hit oil prices, so it wants to profit from higher oil prices for as long as possible.”
Meanwhile, higher prices could be threatened if the United States and Iran resume a deal that freezes Tehran’s nuclear program while allowing its oil to be sold again.Trading prospects rise After Tehran dropped a key clause This has stalled negotiations for a long time.
Experts estimate that Iran could add 1 million barrels a day to global markets, significantly easing supply constraints as Europe looks to impose a partial ban on Russian crude by December.
Thus, the timing of Saudi Arabia’s production cut comments is critical, as it comes just days after Brent was near $90 a barrel.
In fact, the kingdom’s break-even price is around $85, according to Viktor Katona, chief crude analyst at Kpler, who said Riyadh “just needs money” and wants to avoid “not as much as it used to be.” Convenient pricing environment”. ”
Efforts to keep oil prices high will clash with U.S. efforts to lower crude prices as President Joe Biden struggles to find a way to combat inflation.
So, as Washington and Tehran move closer to a deal to lower oil prices, Saudi Arabia is pushing geopolitics by using OPEC+ production cuts as a threat to Iran’s re-entry into the market, Katona said.
“Saudi Arabia could allow those involved to screw up the deal,” he warned.