Qatar Crisis Hard to Resolve

This is more than a diplomatic row among GCC members. Perhaps emboldened by President Trump’s visit, Saudi Arabia and its allies have declared if you are with Iran (or specific radical Sunni groups), you are against us. This effort to delineate sides in the region cannot be easily reversed without substantial outside pressure. Expect a geopolitical premium to creep into energy prices as this dispute continues.

Weekend in the Gulf Changes Little

Notwithstanding the pageantry of the U.S. President visiting Saudi Arabia and the enthusiasm of young Iranians hailing their moderate President’s reelection, little changed in terms of the region’s political stability, the battle with ISIS or oil policy this weekend. The clearest signal from the weekend was the public and forceful assertion that the U.S. has allied itself with the Saudis versus Iran, which can only have stoked the age-old rivalry. This should not impact OPEC dealings this week as Iran’s production is near a top, but it is likely to have repercussions down the road when (and if) Iran’s productive capacity rises.

Has OPEC Risen to the Challenge?

The decision by Saudi Arabia, Russia and ostensibly the rest of OPEC to extend the production cut through the first quarter of 2018 is not a surprise, except for the addition of the first quarter of 2018. Extending through early 2018 signals that the producers understand the magnitude of the challenge. Whether they rise to the challenge depends on their success this summer. OPEC needs to do as much as possible now to temper the surplus coming in the first quarter.

U.S. Shale is Back and the Crude Migration to the East Resumes

At the end of 2014, Saudi Arabia, with its OPEC partners, opted to lift crude oil production and
pursue greater market share in the face of rising U.S. shale production and the expected removal of
sanctions on Iran. By the end of 2015, crude oil prices had tumbled under $40, Saudi and Iraqi
production had risen by 1.5 million b/d, a nuclear deal was indeed struck, and Iran was gearing up to
raise exports. U.S. shale producers had worked furiously to cut costs and stay in business, but their
production had finally crested and was declining. Ironically, in this market of low oil prices and
falling U.S. production, the U.S. government lifted the ban on crude oil exports.