Oil rises as Ramadi falls as this markets price action continues to defy the calls for an oil price crash. ISIS forced Iraqi security forces to flee the largest province in Iraq despite help from U.S. air support.
Yet Iraq is far from the only geopolitical risk for oil as Saudi Arabia and it coalition resumed airstrikes in Yemen against the Iranian backed Houthi rebels. The rebels still control the capital of Yemen and the northern part of the country. There will be a summit in Saudi Arabia with Yemen politicians that will plan on Yemen’s future after the rebels are defeated. This comes against a policy in the United States that may spark an arms race in the Middle East.
After snubbing President Obama’s Camp David Summit, King Salman of Saudi Arabia is now going to use the nuclear option. It is being reported that Saudi Arabia had made the “strategic decision” to purchase a nuclear weapon from Pakistan. It is clear that Saudi Arabia questions President Obama’s pledge that the United States will have its back if there is any threat to the Kingdom. Perhaps it is because he lost credibility when he backed off of his “red Line” pledge in Syria.
Talking about that red-line, the Washington Times reports that "there are numerous reports of (Syrian President) Mr. Assad using chlorine bombs against rebel forces over the past several weeks. Chlorine is not a prohibited substance under international treaties — it has countless civilian uses familiar to all Americans, from laundry bleach to swimming pool and drinking water cleansers. But its use in bombs shells or any other weapons is prohibited.”
Oil also should have got some support from the falling rig count. Oil bears tried to make a big deal that the drop in rig counts was only eight, one of the smallest in a record string of 22-weekly pullback, but you can’t keep cutting rigs at the same pace or soon you will have no rigs operating. The oil rig count is down close to 60% from its peak of 1,609, hit back in October and is the lowest oil rig count total since August 2010. Maybe the cut in rigs is leveling off but there are still problems in the patch.
Dow Jones reports that Bernstein says oil's price slump within the past year has placed 22 small-cap and private companies, with total assets of $33 billion and estimated production of 383,000 barrels of oil equivalent per day, at risk of going bust. A dozen of the firms have production assets in North America, with the rest spread evenly across South America, Europe and Asia Pacific.
"If Western oil majors are suffering losses across the board for the first time ever, there must be material pressure on operators at the lower end of the spectrum," the investment bank says. Companies which Bernstein says are under duress include North American shale producers Quicksilver and American Eagle Energy, both of which have filed for bankruptcy protection within the past two months. Also at risk is Afren (AFR.LN).