Why Oil Prices Will Rise Despite Iran Deal -- Saudi Arabia

No one was more upset, save for the Israelis, by the recent agreement between the Iranians and the U.S. than Saudi Arabia, the Iranians natural enemy in the Middle East.
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Why is Brent crude rallying in the face of a new Iran nuclear deal? Two words might explain it: Saudi Arabia.

No one was more upset, save for the Israelis, by the recent agreement between the Iranians and the U.S. than Saudi Arabia, the Iranians natural enemy in the Middle East. By the number of visits that Secretary of State John Kerry made to the Kingdom and the appearance of Saudi sovereign investor Prince AlWaleed here in the U.S., it was clear that the message that the Saudis were sending to the U.S. government went unheeded: the U.S. inked a 6-month agreement relieving much of the financial pressures built up by sanctions over the last 3 years.

Don't be fooled by the public statements of approval delivered by the Saudis -- they're mad -- hopping mad.

And what do the Saudis have as leverage to make the point of their dismay at this new agreement with a president who decided not to listen to the only two remaining allies in the Middle East? Only oil.

The Saudis have tried to deliver stability into the oil market through the many geopolitical issues that emerged in the last 6 years, filling the gaps in production caused by the Iraq shutdowns, Libyan revolution, Iranian threats of closing the Straits of Hormuz and the Egyptian Arab Spring. With total production of over 10 million barrels a day today, they control all the swing barrels of production and have literally the world price of oil in the palm of their hands. They don't need to produce 10 million barrels and a 2 million drop in production would cause a likely 20 percent increase in oil prices, with a concurrent increase in gas prices as well.

Will the Saudis look to punish this U.S. president going into midterm elections next year with a monster rise in gas prices, tethered to the price of Brent crude? Well, the Brent price of crude after the Iranian deal first dropped $2 a barrel but came storming back, now up more than $4 from the lows and trading above $111 a barrel.

Wait, what? The prospect of Iranian barrels coming on market should have brought prices DOWN, but someone believes that even the most likely release of even another 1.2m barrels a day from a revitalized Iranian oil industry over the next several months is likely to be swamped out by a removal of barrels coming from SOMEWHERE.

That somewhere might include Libya, it might include Iraq. But it most likely represents an angry Saudi Arabia, looking to use what muscle it has left to influence U.S. foreign policy and help scuttle this 6-month Iranian trial balloon.

Was a message passed from the Saudis to the Americans that every barrel of Iranian crude likely to hit the market would be answered by a sequestering of 2 or 3 barrels of Saudi oil?

That's the story the market is telling me right now.

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