Disappearance of Saudi journalist could unsettle global oil market

Analysts are concerned that the disappearance of Saudi journalist, Jamal Khashoggi, could unsettle the global oil market, one of the clearest indication yet of how volatile the crude oil market has become.

The concern is that the ongoing standoff between Western Countries and Saudi Arabia over the journalist disappearance could derail talks in the coming weeks between OPEC and non-OPEC on how to deal with the U.S. sanctions on Iran. There are fears also that it could promote instability among the club of oil producers if Saudi Arabia is weakened.

“For the global oil market, this situation is a direct threat to current market stability too. With OPEC’s leading producer, and proponent of the current oil production deal with Russia, weakened or even threatened by regime implosion, the sharks will be hunting very soon,” observes Cyril Widdershoven, energy analyst and founder of Dutch consultancy, Verocy.

Widdershoven further notes, “Several OPEC members will not be totally unhappy with the volte face of MBS, as some indicated. An instable Saudi Arabia gives room to manoeuvre for Iran, Qatar and Venezuela. These three will be looking for any weak point in the Saudi power constellation, as this will weaken the Moscow-Riyadh link too.”

On Sunday, the stock market in Saudi Arabia plunged 7% on Khashoggi fallout; the biggest drop since 2014, and analysts believe oil could take a beating next.

Robert Carnell, chief economist head of research said that the incident “opens a new source of risk.”

“Any Saudi retaliation will presumably mainly come through reduced oil supply and higher prices. That won’t help market sentiment,” he wrote in a note on Monday.

Relations between Saudi Arabia and Western countries have deteriorated rapidly, after Khashoggi, who writes a column for the Washington Post, disappeared on October 2 after visiting the Saudi Consulate in Istanbul, Turkey, with many speakers and delegates threatening to pull out of the Riyadh for the Future Investment Initiative 2018 coming up in less than two weeks.

A growing list of investors and speakers, such as Virgin Group’s CEO Richard Branson, Uber CEO Khosrowshahi, Los Angeles Times owner Patrick Soon-Shiong, AOL co-founder Steve Case and The Huffington Post co-founder Arianna Huffington are threatening not to attend to put pressure on Riyadh to act. This is seen as a major blow to Riyadh’s dream of making the country a global investment destination.

Oil prices steadied on Monday as tension over the disappearance of the journalist continued with benchmark Brent crude oil rising by $1.49 a barrel to a high of $81.92 before giving up its gains to trade around $80.38, down 5 cents. U.S. crude was down 5 cents at $71.29.

Meanwhile, Donald Trump, U.S. President has threatened “severe punishment” if it is found that Khashoggi was killed in the Saudi consulate.

Saudi Arabia promptly responded with a statement saying it would retaliate any action against it over the Khashoggi case, according to reports by the state news agency SPA on Sunday, quoting an official source.

“This has raised concerns that the Saudis may use oil as a tool for retaliation if any sanctions or other action is taken against it,” Warren Patterson ING commodities strategist told CNBC.

The United States is counting on Saudi Arabia to turn on the taps so that the current oil price rally would take a break and improve the Republican chances during the midterm elections.

Sanctions against Iran are expected to kick in on November 4 which will further drive up oil prices unless spare capacity is produced to meet the supply that would be constrained in Iran and Saudi Arabia has a significant say on spare capacity.

ISAAC ANYAOGU