Art Cashin of UBS shares the following observations from Don Coxe this past week. I thought it was interesting, and wanted to pass it along:
“The incomparable Don Coxe, one of the very best observers and analysts of global commodities recently wrote this:
Most observers thought the Organization of Petroleum Exporting Countries (OPEC) would cut its production to protect its members’ incomes and slash frackers’ profits. If these were ordinary times in the Mideast, that forecast would have been accurate.
But this has been a year of major geopolitical crises in the region, and the Sunni Arab oil states have found themselves facing grim challenges.By October, it was becoming clear to us and others that Saudi Arabia and its Gulf Emirate allies could not afford to continue petro-pricing business as usual with sectarian wars exploding out of control, threatening the entire region.
In particular, they were infuriated that the Shia regime in Syria was being propped up by Iran and Russia. Moreover, Iran seemed to be getting closer to becoming a nuclear power with each month. Amid the chaos, the Islamic State terrorists had suddenly become a formidable challenge to the entire region, and they were getting increasing revenues from oil properties they had seized.
The Saudis had long since concluded that U.S. President Barack Obama was a weak reed – at best. So, we believe they felt forced to stop the cash flows to Syria, Iran and the Islamic State and deter Russia. They decided to keep pumping oil, allegedly to fight fracking, but also to weaken their regional foes.
No one knows how long this strategy will continue. The Gulf States have trillions in sovereign wealth funds to back their budgets.”
Fascinating stuff. Thanks, Art.
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