It’s all happening in the Middle East once again this weekend. A surprise attack by Hamas on Israel set off a strong response in something that will rekindle instability in the region. I doubt Israel headlines move markets but the violence comes at the same time that the US looking for some kind of peace deal involving Saudi Arabia.
The WSJ’s Summer Said reports that Saudi Arabia has told the White House it would be willing to boost oil production early next year if crude prices are high. That would be part of a deal where Saudi Arabia would recognize Israel and get a defense pact with Washington.
There were rumors of a Saudi deal earlier in the week and that was cited as one of the reasons for the drop in oil prices.
The deal would include US support for a Saudi civilian nuclear program, and US approval for sophisticated weapons sales to Saudis.
The WSJ report said the US hopes to broker a deal in the next six months and that Israel, Saudi Arabia and the US have agreed on the broad contours of a deal. The deal may need Congressional approval and the US emphasized to Saudi Arabia that it would need to repair its image in the US, presumably by pumping more oil.
This will make for an interesting open to the oil market in the new week. The conditional part of the agreement that ‘if oil prices are high’ is doing a lot of work in this report because ‘high’ is certainly a matter of opinion. I’m certain Saudi Arabia doesn’t consider the $84.58 closing price of Brent on Friday as ‘high’. So is that threshold $100? Or $120? Saudi Arabia also needs to balance its relationship with OPEC and Russia while funding its mega-projects.
There could be an element of ‘sell the rumor, buy the fact’ on this report.