How will the Saudi, Iran tensions influence oil prices? - COMMENTARY

Tue 05 January 2016 12:57 GMT | 16:57 Local Time

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"Oil has costed more than $100 for four years."

Saudi Arabia has executed 47 prisoners charged with terrorism, including Shiite cleric Nimr al-Nimr. After that the Iranian leadership expressed its protest to this country and this worsened ties between the parties. It could not but affect the oil prices on the world markets.

Oxu.Az has addressed the head of the Center for Oil Studies Ilham Shaban regarding this issue.

I.Shaban confirmed that the worsening of ties between the two countries affected the prices:

"If you look at oil prices over the past 48 hours, you will see them falling and rising. This, in turn, is linked to several factors, influencing the market.

First of all, the news from Gulf states and other countries influences the oil market as a spark. Prices are growing. The relations between the two countries have recently worsened. But after that we need to know how it is going to affect oil prices.

Can Iran create any threat for Saudi Arabian tankers in Ormuz? When such information is not confirmed, prices tend to decline. Thus, oil prices first rose to $38.08 per barrel and then dropped to $36.95."

He said the oil prices were also affected by the processes in China.

"However, the price decline is associated not only with Saudi, Iran tensions. Yesterday we also heard a pessimistic statistics related to China. What is going on in that country? First of all, the rate of Chinese yuan to US dollar dropped to the lowest level since 2011.

In line with China's statistics, its inner production and industry continued to decline over the past 10 months. It means that the energy demand of the biggest energy consumer has dropped, and this country will not need oil and gas as much as in previous years. This affected the market, causing a drop in oil prices.

Oil prices on the stock exchange could rise sharply. We witnessed this in period of the 'Arab spring'. At that time  analysts said that the real cost of oil is $80, however, in period of the 'Arab spring' oil was sold  for $20 more than its real price.

The expert said that oil prices are regulated by real economy rather than conflicts:

"The world economy is further globalizing at the moment. Conflicts not growing into war, as well as a war between Yemen and Saudi Arabia, war against ISIS and clashes in Syria have a very insignificant impact on the market. Therefore, the situation on the market is currently regulated by real economy rather than conflicts.

When oil prices experience a sharp decline, the primary producing countries tend to incite wars in order to mislead public. This is not my personal opinion. It is proven by the analysis of psychology of the primary producing countries, in general.

You know that Saudi Arabia has lost $200mln within a year, and the country's budget deficit made $87bn last year. It has to be noted that the United States warned Saudi Arabia against executing the cleric. But Arabs did this. They executed the Shiite cleric. And Iran reacts adequately in a wish to demonstrate its potential."

The specialist also added that beginning from the second half of 2016 oil prices will range within $50. 

News.Az

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