After recent developments between Saudi Arabia and Iran, on the background of Riyadh implementation of the death penalty against a number of terror suspects, notably, Nimr Baqir al-Nimr, and Faris Al- Shuweil, oil prices rose more than 2% on the background of these events, but it was soon returned to goes down.
It is worth noting that the accelerated Reactions between the two countries and the attack on the Saudi embassy in Tehran, led oil prices to rise, which did not last long After that prices of Brent crude jumped to reach to a level of $ 38.5 per barrel, and it was returned again to drop to $ 36, it is known that the two countries are the main producing of oil in the Organization of Petroleum Exporting Countries “OPEC”.
According to experts in the field of oil, it is likely that the average of prices of Brent and US crude is to reach around $ 50 a barrel in 2016, with no limited growth capacity of the demand to absorb the increase in supply.
A poll was conducted by the agency of «Reuters» and released its outcomes has ruled out much rise of oil prices this year, it appears that the weak growth of the demand will not be enough to absorb the increased supply from countries such as Iran and Iraq, despite the expectation of production decline from outside the «Organization of Petroleum Exporting Countries” OPEC “.
From here we can say that it is undesirable to many observers that the stability of oil prices is below the ceiling of $ 40 a barrel, and despite the tension between Tehran and Riyadh Not to mention the tensions in the region, what is the reason behind this stability and fixedness in oil prices?
Apparently , the oil market is witnessing these days the worst of its phases since more than three decades, where it faces significant challenges noting that there is today a glut in oil supply, and there are also a new Producers in the Market (shale oil),and there are implications for the slowdown in the Chinese and global economy, and all of these posed challenges which formed a criteria on the prices of oil.
Today, the tension is growing in relations between Riyadh and Tehran, which would impose a confrontation strategy which may take the form of economic and military confrontation, and come back to the question of Iranian threats again about closing the Strait of Hormuz of what was done by Tehran in the past.
The real problem for the oil markets now is not the production, but the disruptions of supply and break down, which may spark prices significantly.
To cut off diplomatic and trade relations between Saudi Arabia and Tehran may entail lack of cooperation in the field of oil, and this situation is a kind of conflict and confrontation, and Tehran may take a policy to confront the policy of maintaining on the production ceiling led by Saudi Arabia, which may bring about confusion in the oil markets , but it will not affect the prices , not to mention the activation of shale oil role in the event of decline in oil supplies from major producers.
There are large oil reserves in Saudi – Arabia and Iran up to 400 billion barrels, and most of these quantities are present in fields close to the Strait of Hormuz , and any confrontation between them can disrupt navigation in it and cut the supply of oil about world markets which is estimated at 17 million barrels per day , which means that the rhetoric confrontation between the two countries is supposed to ignite the concern of the global markets.
It is well known that the Middle East in a state of turmoil because of the tensions and conflicts in several countries, including: Syria, Yemen and Palestine, not to mention the border tensions in Turkey, and Saudi Arabia and other troubles that beset the region in general.
In the opinion of the analyst at “IG Markets” in Singapore Bernard that the “Asian markets react with fears that the geopolitical tensions in the Middle East may lead to the threat of oil supply.”
Despite these tensions in the region, the oil prices are still low by two-thirds since the mid-2014 as a result of the huge surplus of the the supply at a time when producers are pumping between 0.5 million and two million barrels a day more than the demand.
So the real problem to the markets currently is not in oil production, as we mentioned earlier in terms that the markets are oversupplied With supplies and any new supplies will not bring about any effect , but the real problem is in the stop of oil supplies in the event of any confrontation , and then will flare up prices to unprecedented levels and could record new standard figures to reach the ceiling of $ 200 a barrel.
Rawabet Center for Research and Strategic Studies