Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
My meetings here in Dubai are at the Burj Al Arab, the fabled "seven-star hotel" built like a huge ship's sail on its own man-made island.
At center stage are some of the region's top oil policymakers, including a rather impressive forty-one year old, His Excellency Suhail Mohamed Faraj Al Mazrouei.
As the Minister of Energy here in the United Arab Emirates (UAE), His Excellency occupies a key place in the center of OPEC's oil war.
Together, these are some of the very people involved in OPEC's recent decision to maintain current production levels.
What I've learned at these meetings is setting up one of the best opportunities in decades…
It's Official, OPEC Has Declared an Oil Price War
The truth is nobody is really certain what comes next in the Persian Gulf. But a symbolic omen of sorts did hit this week.
Here in Dubai, where the desert meets the water, something very unusual occurred. It rained.
The accompanying clouds have appeared figuratively in my meetings over the past several days as well.
Given the big time difference in the weekly schedule in this part of the world, the Dubai Stock Exchange (DSE) was open on Sunday and today in advance of a two-day national holiday. That gave my meetings much more focus.
As felt elsewhere throughout the world, stocks on the DSE were hammered in the aftermath of OPEC's decision to maintain current production levels in the face of falling oil prices.
But Dubai isn't just focused on oil. The country is now a center for real estate, finance, and trade. The other six emirates, however, led by Abu Dhabi, are still dependent on global oil price swings.
And in the center of it all is His Excellency Suhail Mohamed Faraj Al Mazrouei, who has been the Minister of Energy for almost two years now. As happens in places like the UAE, he began his career at any early age, acquiring experience in several ministries and with the major national oil companies.
His English is impressive, as expected from a 1996 graduate of the University of Tulsa (in petroleum engineering; no surprise). And his demeanor is even more so.
His opinion reflects the swing position in OPEC – between the dominant Saudis and those members who have clamored for a cut in production to bolster the price.
This latter camp includes Nigeria, Venezuela, and especially Iran. Each of these countries needs the price of oil to be above $100 a barrel to support badly balanced budgets. Meanwhile, other members are also showing signs of concern as the oil price hovers around $70 a barrel.
All of which simply intensifies the divisive nature of last week's decision at the OPEC session in Vienna to maintain current production levels.
The Minister was quick to emphasize the global responsibility in balancing supply and demand to avoid oil price volatility. Yet, privately he acknowledges the cartel's objectives are now in a direct collision course with unconventional production elsewhere in the world, especially in the shale-rich United States…
The United States Is in the Saudi Crosshairs
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.
I cannot believe that you have again missed the big picture here. Back when Ronald Reagan was the president, he asked the Saudis to ramp up oil production in order to drive down the price and effectively cut the economic throat of the Soviet Union. His son Michael recently confirmed this. And now, because of Russia's invasion of Crimea and the rest of Ukraine, the Saudis are doing it again. With oil at $70 the Russians will be running a deficit in their next fiscal year and because of the West's sanctions, Russia will not be able to finance that deficit. Already Putin is sounding desparate. He is offering to any criminals who are hiding money outside of Russia, for them to be able to bring that money back into Russia without any questions, investigations or charges. Russia will be forced, by the soon to be revolting Russian public, to pull out of Ukraine in order for a stablization of their economy. When that happens you can count on the Saudis cutting back oil production and the price of oil sky-rocketing. I expect that that will happen before Christmas of next year(2015). As soon as you see Russia pulling out of Ukraine, that will be the time to invest in oil stocks. The Russian interior minister recently acknowledged that there are huge shale oil and gas reserves in the eastern Ukraine. This is obviously Russias original motivation for invading. They could not allow Ukraine to develop those reserves because that would mean that Russia would have lost Ukraine as a major customer, and worse yet for Russia, Ukraine would have become a competitor for the oil and gas business of Europe.
Great analysis l, Jeff. Reagan also fought the two parallel Russian pipelines to Europe. Only one got approved so Reagan cut half of Russia's expected revenues. The battle today against the South stream pipeline and the Ukraine pipeline is also designed to cut Russian revenues in order to keep Russia's economy and military in check.
opec`s decision is a declaration of war.
the sensible and right economic decision would be to reduce production [ say mil 1.5 bpd]
which would result in a disproportional increase in price say 20% against an output reduction of 5%!!!!
the saudis declaration of war seems to be aganst their savior during saddam- the USA
I definitely see an angle here in which the USA benefits from this "price-war". The falling prices of oil are destroying the economies of both Iran and Russia. Iran is also Saudi Arabia's shi' ite muslim enemy, and Russia to a degree is an ally of Iran.. so, the USA and Saudi Arabia are fighting common enemies more so than each other. Short term, the Saudis can put a little hurt on the USA's shale production, but longer term, America wins this price war. Currently the lower gas prices can bring relief to US consumers similar to a pay raise or tax cut, and transfer this consumption to other areas of the economy. Longer term, if the prices drop lower and lower for a prolonged period, this is bad news and could be signs of poor economic growth, and possible deflation coming. And dont forget the large bond market tied to all these new up and coming shale companies, if they can't produce at the lower prices, we could see some ugly ripples in the bond markets.