Oil and the Axis of A-holes

Did the Saudis really think Vladimir Putin would play by the rules? Did the Saudis really think Vladimir Putin would play by the rules?                                                                                                      [outsider club logo header] Oct 02, 2024 | By Briton Ryle Oil and the Axis of A-holes “That’s a nice oil market you got there, sure would be a shame if something happened to it.” That’s the gist of the Saudi threat to fellow OPEC+ members, as reported by The Wall Street Journal this morning. The exact quote from the article goes: “The Saudi oil minister has said that prices could drop to as low as $50 per barrel if so-called cheaters within OPEC+ don’t stick to agreed-upon production limits…” It might be inappropriate to laugh, but I find this hilarious. If you don’t know, Saudi Arabia created OPEC+ in 2014 to bring a few more countries into the oil cartel that seeks to control oil prices through regulated supply. The biggest is Russia. And I guess Saudi Arabia thought inviting Russia into its little oil club would give it some control over Russian oil production… Did the Saudis really think Vladimir Putin would play by the rules? C’mon man! Of course, Putin has played nice. “Oh sure we’ll cut our own production so we can all make money.” But the reality is that Russia has a stupid war to fund and Putin has made the House of Saud his huckleberry, using the cover of Saudi Arabia’s own production cuts to sell as much oil as it can to China and India, at the highest prices it can get.  Like I said, hilarious. Though, apparently Saudi Arabia doesn’t think it’s so funny. What’s even funnier is that Saudi Arabia thinks that together with Russia and China, they can create an alternate global reserve currency that undermines the US dollar. Ha! What could possibly go wrong?  But that’s a topic for another time. Today we talk oil… The Rockets’ Red Glare Yesterday was a little unique, in that the rockets were Iranian and the red glare was flying into Israel, not out of it. The difference is stark. Yesterday marks the second time Iran has fired directly at Israel. Both times, the “attacks” have been toothless. The rockets flying out of Israel, however, have not been toothless at all. Israel has devastated Hezbollah's leadership and taken out a few Iranian military bigwigs too. Oil started to rally yesterday as soon as the rockets started flying. Because everyone knows the cycle – Israel will respond, and then Iran will respond, then Israel and so on until perhaps the Middle East is engulfed in war. But even the oil rally that started yesterday has been weird. West Texas Crude traded around $68.35 most of Monday, ramped to $70.40 yesterday afternoon when the reports of rockets hit social media and has settled into a range just above $70 today. Maybe it’s more accurate to say it’s the lack of a significant oil rally that’s weird. The Axis of A-holes It is likely that the market is taking the Saudi threat to send oil prices to $50 serisouly. After all, they’ve done it before. Back in 2014-15, Saudi Arabia opened the spigots and crushed oil prices from $100 to $35. Over 100 U.S. shale companies went bankrupt. While I’m sure the Saudis wouldn’t mind putting a dent in the U.S. shale sector, however a dent is likely all it can muster. Because U.S. oil companies did what you’d expect companies in a capitalist system to do when business conditions change. They adapted and cut production costs from $50-$60 a barrel to around $35. Saudi Arabia wants to be the dominant power in the Middle East. That’s why it is in the process of “normalizing relations” with Israel, and by extension, the U.S. Iran wants the same thing – to dominate the Middle East. That’s why it armed Hezbollah, Hamas and the Houthis. That’s also why Iran is part of what we might call the Axis of A-holes - Russia, China, and North Korea. They’re all having a lot of fun supporting Russia’s war against Ukraine. Because they're a-holes. But you gotta wonder: will Russia help Iran if things get worse with Israel (and the U.S. by extension)? Probably not. Oil Wars It sounds pretty likely that Israel is planning to strike at Iran’s oil infrastructure. Such a move would raise oil prices and benefit Russia. Saudi Arabia can easily offset any supply disruption from Iran, possibly capping a rally for oil prices and removing that benefit from Russia. And finally, the U.S. would very much like to see oil prices stay right where they are. The drop for gasoline prices is a big reason why inflation moderated to the point that the Fed could cut interest rates. A spike for inflation would not be welcome, especially in an election year. Pretty interesting stuff isn’t it. Right now I’m taking a wait and see approach. Oil could certainly rally. But there are a lot of of interests that are aligned to keep that from happening. And maybe if Iran finally figures out the rest of the Axis of A-holes doesn’t really have it’s back, it will pipe down. Cheers, Briton RyleChief Investment Strategist[Outsider Club]( X/Twitter:[( You Might Also Like: The Saudi Oil Threat [ The Private Equity Bubble [( Nuclear Bull Market [( This email was sent to {EMAIL}. 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