Ok... yesterday the government of Saudi Arabia executed Nimr al-Nimr, a well known Shiite cleric.
This has sparked outrage and violence; and (in my opinion), suggests there may actually be a revolution in Saudi Arabia.
If this happens, expect a certain number of well know oil companies to drop 20-30% (as happened when there was a revolution in Libya back in 2011).
Maybe "revolution" isn't the right term since it implies something that originates from within.
But SA has been asking for it for years, and I think this time they may have gone too far.
I don't think there will be Amy repercussions. Saudi Arabia is already fighting two proxy wars against Iran in Yemen and Syria. How much worse can relations get? If anything this act could be seen as an olive branch to the KSA's internal Wahabbist religious leaders who consider Shia Muslims to be apostates.
That Iran war might not be a proxy for long, Iranian protesters attacked the Saudi embassy.
Yes. It will also crash companies who get a large supply from SA.
An example of this would be Suncor, which was doing fine until the Libyan revolution, at which point they went to shit when their supply was threatened.
Iran will not invade or attack Saudi Arabia over this. The true danger to the KSA is the houthis are advancing into KSA and everyone knows gulf monarchy militaries are incompetent, so they might lose mecca and other territory. Also, KSA is hemorrhaging money and is going to start to cut spending, one proposal is to decrease the subsidy for domestic gasoline. Also, the royal family has developed a lot of internal conflict. The yemen intervention was not supported by everyone.
No revolution in sight, but a shitload of instability.
Probably the other way around actually. Saudi Arabia is the primary reason oil is so cheap at the moment -if they experience disruption one might expect the oil price to actually go up, and thus oil companies to raise in market value.
I think anyone who has been paying attention to the oil market knows that the reason oil/gas is so cheap right now is because Saudi Arabia is flooding the market in an attempt to bankrupt the Dakota shale business before they became too much of a threat.
According to this article, it's already too late, and the Saudi's are burning through so much cash there's a good chance that they will go broke before they can break the American companies:
As far as your question and the whole theme of this post, here's what I think...
1. Saudi Arabia has been a trouble maker (and playing both sides) for decades. Their human rights violations are so blatant and now so public, that the monarchy can't last in the long run.
2. When the kingdom falls is anyone's guess, but the execution of this cleric has lit a fire that is very similar to what happened with the death of Mohamed Bouazizi, which set off the arab spring.
3. Of the publicly held oil companies, there are some who get NO oil from Saudi Arabia, and others who get LOTS of oil from them.
4. If there is chaos in SA, oil prices will shoot up, since it's SA which is keeping them artificially low.
5. However... at the same time oil prices go up, there will be a mini-crash of those companies who rely on Saudi oil since their supply will be in question (note Suncor in 2011 when Libya went nuts and they lost their supply).
6. So, if SA explodes, companies like Shell and Exxon/Mobil who rely heavily on Saudi oil will fall, while companies like Murphy Oil and Sunoco who use almost no Opec oil will rise with the increase in oil prices.
Or, at least, that's my theory at 1AM tonight.
I wouldn't hold my breath: http://www.tradingeconomics.com/saudi-arabia/government-debt-to-gdp
>When the kingdom falls is anyone's guess, but the execution of this cleric has lit a fire that is very similar to what happened with the death of Mohamed Bouazizi, which set off the arab spring.
It has lit that fire under at most the 10-15% of the Saudi population which is Shi'ite. There's no way this is going to topple Riyadh, at best there may be a secessionist movement in the Eastern Province. Granted that's where the oil is, but it doesn't have a great chance of succeeding given the population balance.
Saudi Arabia is only cheap because it's trying to preserve its market share.
Not enough Shi'as in the KSA for a revolution. But boy, the KSA needs a revolution. Unfortunately, it's at the heart of the Wahhabisphere and there's really no viable alternative to the system aside from perhaps removing the Sauds from power and setting up a proper Republic - that's still Wahhabi.
Yes exactly. And if they have any kind of internal problems, their historical answer has been to throw money at it - they can't do that with cheap oil. They will have no choice but to cut supply to raise prices or risk falling and prices will rise anyway.
Saudi Arabia is ~90% sunni and spends much of its oil wealth on defense, especially of said oil infrastructure, they are prepared for a shiite uprising so it is unlikely. Gaddafi fell due to his regime's inability to adapt to demographic and socioeconomic changes and defectors who were quite aware of the changing situation around them (and their dictator's bizarre behavior), not the myth of a spark that spontaneously starts a revolution.
The statement by the Iraqi ex-prime minister might just be a meme, the arab spring and resulting happenings are this season's hot ticket in the middle east and it might be wishful thinking that it would spread to Saudi Arabia
Though it might cause some troubles it won't overthrow the regime, if anything Saudi Arabia might increase oil production due to the need for more money in the short term to spend on reducing unrest, though it won't change much.
There is a chance the low oil prices are due to a cartel that fell apart due to said happenings. It is possible Saudi Arabia might cave and re-enter a cartel-like arrangement with Iran and the others and oil prices might rise again.
I don't know, this doesn't change my stance of waiting for oil companies to hit rock bottom and buying but it is an important development
Here's how to trade oil:
There's about 1.5 million barrels per day more in the market than there is demand.
If 1. 5 mmbpd gets taken out of the market, buy oil.
If more oil comes to market (Iraq, Iran) sell oil.
There. Now you know as much about trading oil as any profitable hedge fund's oil traders.