The bullish fundamentals on oil are becoming more apparent as both Saudi Arabia and Russian are signaling that they are committed to reducing the global oil supply glut and that they are signaling an extension of the current production cut agreement to the end of the year. Yet, it was comments by Saudi Crown Prince Mohammad bin Salman to the Fox Business Network’s Maria Bartiromo that may have a lasting impact on global energy and stock markets.
The Fox Business Network reported that “During a panel moderated by FOX Business’ Maria Bartiromo on Tuesday, Crown Prince of Saudi Arabia Mohammad bin Salman said the country wants to emphasize that it is open and accessible to the rest of the world. “We only want to go back to what we were, the moderate Islam that is open to the world, open to all the religions,” the Crown Prince said. “Seventy percent of the Saudi people are less than 30 years old and quite frankly, we will not waste 30 years of our lives in dealing with extremist ideas … We want to live a normal life, a life that translates our moderate religion and our good customs, we coexist and live with the world and contribute to the development of our country and the world.”
Fox Business also reported that “In addition to efforts to open up its economy Saudi Arabia plans to build a new city of the future, promising to usher in a progressive generation that will reshape the Middle Eastern country as it seeks to prepare for the post-oil age.
A so-called “City of the Future” the future city, named “NEOM”, stems from Saudi Arabia’s Vision 2030 plan, a strategy created to reduce the country’s dependence on oil. NEOM, which will be located on the coast of the Red Sea, will span more than 10,000 square miles (26,500 square kilometers), extending across the borders of Egypt and Jordanian, making it the “first special economic zone to span three countries,” according to Saudi Crown Prince Mohammed bin Salman. The city will focus on nine sectors, “some conventional, some new” to capture a “good share in the future of the world. First, it was the President of the United States and now it was the Crown Prince of Saudi Arabia spilling their insides to Maria Bartiromo. Once again, Maria gets a big story out of a global leader that they never seem to tell anyone else.
Yet when we talk about a city of the future, for Saudi Arabia will it be a pipedream or are they really going to be prepared to move beyond petroleum? With the very real possibility of another spike coming at oil prices it might be harder for the kingdom to break old habits. Still, it will be up to the Prince and his vision to make it work, and he must allow some freedom of the builders or his city of the future may end up as empty as some of those cities in China.
Yet we seem to be on the verge of a conjuring long-term bull oil cycle. We saw the bottom of oil hit near $26 a barrel that caused a massive cut back in CapX spending and that lead to a generational bottom in oil. Now oil is very clearly in a bull market and the global oil supply glut is disappearing right before our very eyes. Even yesterday the American Petroleum Institute reported another 519,000 drops in crude oil supply. While the drop was less than the market expected it included a 55,000 barrel drop in Cushing crude supply and was enhanced by a whopping 5.75 million barrel drop in gasoline supply and a huge a 4.95 million barrel drop in crude supply. The overall draw is very supportive and if confirmed by the Energy Information Administrations today should set the stage to build on oil’s 6 month high.
Dow Jones Dan Molinski reports that The Department of the Interior proposes "the largest oil and gas lease sale ever held in the U.S." to be held in March, covering nearly 77M offshore acres in federal waters of the Gulf of Mexico from Texas to Florida. Interior Secretary Zinke says more access is important in today's "low-price energy environment," and calls the proposal "a pillar of President Trump's plan to make the U.S. energy dominant."
The sale would be the second offshore sale under the 2017-2022 National Outer Continental Shelf Oil and Gas Leasing Program, which has been criticized by environmentalists, who say with a current surplus of oil and natural gas it makes no sense to drill even more.” Yet maybe we should let the market conditions decide that.