Oil prices fall even with spat between 2 big producers

According to Al Arabiya, the oil rich kingdom expects to run an $87 billion deficit in 2016, down from about $97.9 billion this year.

A flare-up in Middle East tensions such as this protest at the execution of a Shiite cleric, has triggered a text-book surge in oil prices.

Saudi Arabia is the country that actually has gained an ever more influential position within OPEC for the past 35 years, since the Islamic Revolution in Iran, which forced worldwide sanctions on the Persian country. The clash, as recent events in the Persian Gulf are making clear, is between the Sunni-led (in fact, Wahhabi-led) Saudi Arabia and the Iranian-led Shiite block, with the latter being backed by Russian Federation.

The risky and expensive Yemen operation has plenty of potential for strategic blowback, as it brings Saudi Arabia into indirect conflict with Iran and has drawn criticism over Riyadh’s alleged human-rights abuses during the campaign. Traders also weighed Saudi Arabia’s 2016 austerity budget, which suggested that the key crude exporter was planning for oil prices to stay low for the foreseeable future.

Here’s a breakdown of what’s pulling the WTI crude oil price today lower… Both benchmarks spiked above $38 per barrel. Over this period, we’ve seen that most frackers lost money when oil was a in the second quarter, and some even lost more than their revenues with with oil at in the 3rd quarter, meaning they’d need to more than double revenues just to break even. That the Saudis are engaging in deep budget cuts that will impact everyone and every business in the country now shows that they are planning for oil prices to be priced low for quite a long time. New data showed that China’s factory activity slowed in December, sending the Shanghai Composite down by 7 percent.

This is a truly freakish data point. This stands out as a bearish black swan for crude markets in the coming months.

The immediate outlook for oil prices remains bleak. After spiking early on January 4, crude fell back by the afternoon as the markets digested the bearish news from China.

What usually happens in such circumstances is that Saudi Arabia attacks the supply side – that is, it cuts production to boost prices.

The tensions between Saudi Arabia and Iran “will likely reduce the likelihood of any collaboration between the two oil majors regarding oil output as Iran re-enters the global market once sanctions are lifted”, ANZ bank said on Tuesday. ConocoPhillips and NuStar Energy were the first to export oil from the Eagle Ford.

Changing consumer habits, largely the result of technology, means the beneficiaries of cheaper oil are not as easy to identify on the sharemarket.

US crude’s West Texas Intermediate (WTI) futures finished down nearly 1 percent, pressured by worries that record inventories could swell further at the Cushing, Oklahoma delivery hub.

And they will continue to do so even if crude falls further.

In a foreign policy expert Leslie Gelb surmised that it was policy driving the oil price rather than the oil price driving policy in the region, particularly in light of Iran striking an agreement with the U.S. over its nuclear programme that will again allow it to sell oil to the world.