By E.K. Lieser
According to Dan Eberhart, CEO of Canary, a company that provides drilling services in Denver, it is certainly no coincidence that the threat of oil cuts from Saudi Arabia comes at a time when President Joe Biden is moving towards a revival of the 2015 nuclear deal with Iran. which offered the lifting of sanctions in exchange for containing the country's nuclear program. Recall that the original agreement fell apart after then-President Donald Trump unilaterally withdrew from it in 2018 and reimposed sanctions.
“Such an agreement would provide economic relief to Tehran and, to a lesser extent, global oil markets, freeing up about a million barrels a day of Iranian oil exports that have been capped by Western sanctions. This development, along with fears of an economic slowdown, rising inflation and weakening demand, helped drive oil prices below $100 a barrel,” Eberhart wrote in Forbes.
“It's no secret that Biden wants oil prices, the main driver of inflation, to fall ahead of the midterm elections in November. The President has often asked Saudi Arabia - most recently in mid-July during a visit to Riyadh - to help by boosting supplies. But Saudi leaders are resisting Biden's pleas. This made the deal with Iran the only way to increase the amount of oil on the market. Biden is on that path, but now he is seeing the consequences,” he continued, adding that it looks like Saudi Arabia wants to set a floor price for oil at $100 a barrel in the future.
Eberhart also argued that Riyadh's current stance "confirms that Saudi Arabia remains more tied to Russia than to the United States on the world stage."
“Russia…needs higher oil prices because US and European Union sanctions have undermined its ability to produce and export oil. Moscow must sell its barrels at a deep $30/bbl discount to find willing buyers in Asia as Europe turns its back on Russian energy,” he wrote.
“This means that the recent drop in oil prices has hit Moscow particularly hard, as its oil profit margins have shrunk significantly. The situation could get worse as the West discusses a system to cap the price of Russian oil. But the Saudis still see Russia as an important member of the OPEC+ group and an important ally in the Middle East — more important than America under Biden,” Eberhart continued.
The key takeaway is that “even if the United States and Iran broker a nuclear deal, how positive would it be if OPEC+ cuts production to keep prices below $100? Any hope of oil below $90 for an extended period seems unrealistic in the current market conditions,” he concluded.
Read also: