Oil prices may be showing signs of a bottom, and Saudi Arabia and other big producers might be willing to settle for prices near $45 per barrel, says Sassan Ghahramani, CEO of SGH Macro Advisors.
With big oil producers meeting to contemplate production cuts, oil prices are moving higher today to near $30 per barrel for the U.S. benchmark, and roughly $33 for the international Brent price. The United States Oil Fund (USO) was up more than 2%. The Wisdom Tree Middle East Dividend Fund (GULF) was up 1% in recent trading, while theiShares MSCI Emerging Markets ETF (EEM) was up 1.3%.
An expert on Iran and Saudi Arabia, Ghahramani just told Bloomberg that he doesn’t think there is an “extra bid” — a premium — in oil prices because of geopolitical risk, but rather the opposite. He said he thinks we have seen “some bottoming” in oil prices with spikes higher. While acknowledging a freeze in oil production announced by Russia and the Saudis, Ghahramani said the process of shoring up prices will be a long one with big players – including Iran — attempting to build trust when they are rivals, and “quite frankly enemies” in some cases. But oil-price threshholds are moving lower with a global glut of crude, boosted by U.S. supplies.
Barron’s has said that oil prices could still slip to $20 per barrel this year before recovering. Ghahramani indicated the Saudis could be happy with a new-normal oil price near $45 per barrel. Here are notes from Ghahramani’s interview with Bloomberg Wednesday morning:
This week’s oil-production freeze agreement is a very significant development for macro and oil markets. If there is one message to take away, the skepticism you are reading about the oil freeze is missing the forest for the trees. The shift started to occur in January in Saudi Arabia, a subtle but important shift from their policy, when they pulled the rug out of oil prices by maximizing production to maintain market share …. causing prices to plunge. What happened is the strain on finances among oil producers, and what has happened at the $30-ish level is a wake up call, to producers, to tidy-up prices.
When asked “what do we get wrong about Iran,” Ghahramani said “The Islamic Republic of Iran is a very pragmatic leadership, a post-revolutionary leadersip in the second, third generation.” The government is trying to protect its self interest while in a transition. Quoting another Iran expert, he said people think the Iranian regime is suicidal. It may be homicidal, but business is business.
On the Saudi war in Yemen, and the “proxy” war in Syria between Russia and other Middle East players including Saudi Arabia and Turkey, Ghahramani said that “people talk about the Hezbollah involvement in Syria, but the Saudis have been pumping money into the region. “Saudi Deputy Crown Prince Mohammed bin Salman is over-extended. The U.S. policy on Syria is to extricate ourselves from the region, so what we are seeing is the Saudis talk about sending troops to Syria. I think they are hesitant to do that. The Saudis are hiding behind the United States on this.”
SGH has had its finger on the pulse of peace negotiations in Syria, and the Saudi perspective. See our posts from SGH research: Oil Output Cut In March, As Saudis, Russia, US & Turkey Talk Syria Ceasefire? and On Saudi-Russia Oil Pact, Be Skeptical: Iran Production? Also see our posts As Iran Pumps Oil, Who Gains & Who Loses?