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The price of oil is determined heavily by supply and demand. More oil in the market = lower prices. Less oil in the market = Higher prices. Anything that threatens the supply of oil is going reduce the amount of oil available in the world. Saudi is one of the biggest oil players in the world, so instability in Saudi is big factor.
Thanks for the answer - Sorry, perhaps my question was not formulated well.
My question is: how is the announcement of a series of very high profile arrests of certain key figures in an anti-corruption crackdown in Saudi Arabia threatening the supply of Oil?
Where is the specific threat to supply caused by the removal of (allegedly) corrupted officials?
There is a high threat of war. These people who are being arrested for corruption were threatening to the current government or they would not have been arrested. Governmental over throws are a constant threat there.
If you read the article I posted (the link in the last post), it explains how one of saudi's enemies blew up one of their pipelines. Oil is how Saudi makes the majority of it's money. When under threat, oil is a target in war and their oil already is being attacked by others.
Damage to Saudi drill rigs and pipelines = decreased oil supply and prices going up.
Normally I would agree, however, I don't think OPEC will go away any time soon.
All the OPEC countries were going broke with low oil prices, including Saudi. Venezuela hadn't opened it's borders in 30 years, but they had to last year because they couldn't feed their people, because they were broke.
These countries don't like each other and would never agree to work together unless they were in dire straights. The bad times are too fresh in their memories and none of them are in a financial position to break OPEC restrictions anytime soon. They need oil at a stable $70.00 before they would even consider. OPEC is very aware that the price of oil is still fragile. They are also keenly aware, that if they just disband and flood the market, oil prices will fall like a rock, and none of the OPEC countries want that. If none of them want it, then it won't happen.
Everyone always thinks these counties don't care about oil prices when they do. They are not like the US with multiple income streams. The success and wealth of their entire countries are currently dependent on oil. They are keenly aware of this and none of them want to go back to where they just were. Disbanding OPEC and flooding the market would be like shooting yourself in the heart. Everyone seems to overlook or forget this. Oil prices have steadily gone up since they have been working together again and it has been very effective. The OPEC leaders are smart and know this as well. Hence my humble opinion.
On the other hand, if OPEC is motivated not to ease back on restrictions, then the price of oil coupled with the supply glitches and massive exports might continue to rise into 1st half of next year until there is supply/demand equilibrium
From a trader's prespective, the question becomes when get in.. looking at the CLZ18/19 spread.. it seems to be at the highest in years..
What are people's views on a return to normalcy and some mean reversion?