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The Saudi’s Are Creating Risk in Oil, Forex and Stocks

As oil prices hover near the $50 per barrel level, Saudi Arabia and its willingness to cut oil output has become a catalyst for the broader markets. OPEC is meeting at its headquarters in Vienna, Austria on the 6th and 7th of December. News out of the cartel is that they have reached an agreement to cut production. The goal of the cartel led by the Saudi’s is to balance the market following a deluge of volume which came ahead of the recent US sanctions against Iran.  The Saudi’s are also in the headlines as the US CIA continues to investigate the Saudi Crown Prince and his role in killing the American resident journalist Khashoggi.

OPEC Reached an Agreement

On Thursday, OPEC signaled to the market that it has reached an agreement over production levels for the next six months. The amount is still not known, and OPEC said that it will need to meet with non-OPEC partners including Russia on Friday. Once there is an agreement between OPEC and its non-OPEC partners, OPEC will then announce production targets for the next 6-months.

Oil prices are under pressure and continue to trade down following a statement from Saudi Arabia. OPEC’s largest producer signaled that OPEC might reduce production, but the volume of the cuts may be less than the market expected. Initially, the Saudi oil minister said that he believes it would be prudent for OPEC to cut 1.3 million barrels of crude oil per day to help balance the market amidst growing supply and slipping demand.  On Thursday he slightly changed his tune saying that OPEC might look to cut only 1-million barrels a day.  Saudi Arabia is facing increasing pressure from US President Donald Trump who does not want to see oil price climb.

Trump Has His Own Issues with the Saudi’s

On Tuesday December 4, the director of the Central Intelligence Agency in the US provided a classified briefing to the senate, which created concerns. The CIA has been steadfast in their belief that the Crown Prince of Saudi Arabia was involved in the murder of journalist Jamal Khashoggi. Trump does not want to upset the apple cart and understands that sanction against Saudi Arabia for this crime would reduce the billions of dollars that Saudi Arabia is investing in the United States.

Initially, senators received an abridged version of the CIA’s brief from the White House which stated that the CIA did not have any direct proof of the Crown Prince’s (MBS) involvement in the murder of Khashoggi. Following the direct brief, senators where furious and believe that the White House has bent the truth for their own benefit.

While the senators that were briefed now appear to want to punish the Saudi’s for this action there is no consensus on how to handle this issue. The lame duck Republican House has made it clear they will not take anything up that the senate sends its way. With only a month to go in the current session, the President would veto any bill sent his way. This will likely set up an issue for the Saudi stock market, their forex market and oil when the Democratic run house takes charge in early 2019.

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