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The Arab Oil Exporters & Iran Face World Markets Drowning In Oil; Prices Keep Falling.

*** A Black Era In Russian-Western Relations On Jan. 21 Began As UK's Sir Robert Owen Jan. 21 Said The Ex-KGB Spy Alexander Litvinenko In 2006 Was Probably Murdered On Putin Order; Those Involved In His Poisoning With Polonium Were Then FSB's Head Nikolai Patrushev, And FSB Agents Andrei Lugovoi & Dmitry Kovtun

*** His Widow Marina Litvinenko Called For The UK To Impose Sanctions On Moscow, Saying PM Cameron Should Act On The Case In The Face Of The Damning And Extremely Disturbing' British Report

*** Home Secretary Theresa May Later Said Asset Freezes Had Been Imposed On Lugovoi And Kovtun, Who Were Found To Have Administered The Poison In Litvinenko's Tea; She Also Told The House Of Commons That Russia's Ambassador To The UK Had Been Summoned

*** Lugovoi, Now Russian MP, Dismissed The Report As Absurd', Saying: The Results ReleasedJust Show London's Anti-Russian Position Once Again'; And Russia's Foreign Ministry Said The Report Was Politically Based, With A SpokesWoman Adding: We Regret That A Purely Criminal Case Has Been Politicised And Has Darkened The General Atmosphere Of Our Bilateral Relations'

Dubai - World crude oil prices can fall to any level as there is no floor for them that one can see in 2016. This is not only because of the global oil glut - the worst in this century. It is in view of the Saudi-led price war and Riyadh's determination to hit Iran's theocracy and Russia's Stalinist Tsar Vladimir Putin as hard as possible. Even a top Russian minister says the crude could fall to $15/barrel in 2016. Some say Brent may fall even to $10/b. None of the geo-political troubles in the Greater Middle East (GME) or other parts of the world will affect crude oil prices - set mainly by speculators in oil futures trading. The only two factors causing prices to rise are a dollar drop and a major fall in crude oil inventories. The markets are awash with refined oil products.

ISIS, a Sunni terror "Caliphate", is spreading across the globe so fast that one wonders whether a bloc of Arab/IOC-Western powers can kill it before it settles in Marj D?biq? near Aleppo and the Turkish border. Among many other things, it is increasingly using children as bombs in combat. The number of female bombers has risen sharply, sending children to paradise (news3IsisDabiq18Jan16 & sbme1MosulDam18Jan16).

The NYMEX week ended on Jan. 22 with paper WTI closing at $32.19/b, while ICE Brent settled at $32.18. NYMEX nat. gas closed at $2.14/m BTUs. Despite the snow in the US north-east, NYMEX heating oil at $0.99/gallon was still lower than RBOB gasoline's price of $1.08/g.

Also involved in the price war is Riyadh's GCC partners Abu Dhabi, Kuwait and Qatar. This bloc is pricing Iran and Russia out of petroleum markets for reasons related to the chaotic wars in Syria, Yemen and other parts of the GME.

Iraq and the Kurdistan Regional Government (KRG) are acutely short of cash, while their war on ISIS is getting costlier. And KRG's direct oil exports by-passing Baghdad's SOMO is under-mining the war effort against ISIS. This worries the US-led Western alliance against the terror group. As oil prices collapsed from mid-June 2014, Baghdad was too late in paying to Erbil KRG's 17% share of the federal budget as well as moneys owed to IOC petroleum producers in Kurdistan (see ood1IrnIrqKrg25Jan16).

The price war has got so complicated that mediation for Arab-Persian peace by Pakistan's PM Nawaz Sharif ending in Tehran was followed by Iran's attack of the Organisation of Islamic Co-operation (OIC) for backing Riyadh's position. Egypt joined the Saudi-led Sunni front, warning Iran's role in the Yemen war threatened peace in the Arab Peninsula (see gmt4EgyptWho25Jan16).

All requests to hold an emergency OPEC meeting or OPEC/non-OPEC talks to stop the price fall by cutting production have been rejected by Riyadh. Together with its GCC partners, Saudi Arabia will reject all attempts to halt this war until Riyadh's objectives in the GCC, Iraq, Lebanon, Syria and Yemen have been met - be that before end-2016 or beyond. China's economic down-turn is not likely to be reversed any time soon, affecting Asia and the rest of the world.

Speculators in oil futures trading always tend to act as a herd, causing precipitation on the market. For three and half years to mid-June 2014, they had quickly pushed paper crudes above $100/b. Acting just as precipitately, they are pulling paper crude down - in many cases in panic mode: liquidation en masse, followed by panic-buying which causes prices to bounce back - as during the rest of the Jan. 13 ICE trading day when Feb. 16 Brent bounced back to $30.22/barrel.

Over the past 15 months, world crude oil prices have fallen by 70%. On Jan. 13, Russian PM Dmitry Medvedev warned that falling oil prices could force his government to revise its 2016 budget. He said Russia must be prepared for a "worst-case" economic scenario if the price continued to fall.

Russia's 2016 budget approved in October was based on a price of $50/b. Finance Minister Anton Siluanov says the budget could only be balanced at a price of $82/b. Economy Minister Alexei Ulyukayev warned Russia faced a long period of low prices with crude at $15 or $20/b - explaining: "The biggest risk is that there will be low prices for a long time - that is, for years, for decades". Medvedev said high interests rates were holding back economic growth in Russia. The situation in Iran is far worse.
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Publication:APS Diplomat News Service
Geographic Code:7IRAN
Date:Jan 25, 2016
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