This last week you saw the specter of substantially higher oil prices returning to shake up markets after several years of relatively stable pricing. Oil touched levels that it had not reached since late in the year 2014. Part of what caused this was an OPEC meeting that confirmed supply reductions will continue. Besides this, several Saudi Arabian officials indicated that they would be happy to see oil reach even $100 per barrel in the next several months.
This is of course a real concern for global financial markets that are still heavily influenced by the price of oil. It is also another reminder of why you need a gold IRA. The yellow metal makes imminent sense in your retirement portfolio because gold offers insurance and protection during market turbulence. You should start seriously thinking about how to invest in gold now before precious metals prices rise any higher in tandem with oil levels.
Oil Price Rise Escalates Further This Past Week
Last Thursday saw oil prices soaring once again a day ahead of the OPEC meeting in Jeddah, Saudi Arabia. Reports carried by Reuters from several high level Saudi officials indicated that the kingdom would be happy with oil prices that rallied to even $80 to $100 per barrel in the next several months.
One oil Chief Economist Daniel Lacalle of Tressis Gestion blamed several factors for the continuing and sustained advance in crude prices:
“Oil prices are high because the dollar is low. Massive supply management” in these energy markets can set off artificial rises in oil prices. “That is a big concern… Because oil prices don’t generate crises; the abrupt and unexpected rise of oil prices creates crises.”
In other words, oil price increases that economists and investors do not see coming spell trouble for global markets if left unchecked.
Ongoing Effort to Clear the Global Oil Oversupply Underway
Another factor has been encouraging the rise in energy market prices. Since January 2017, OPEC has been working together with Russia and a few other energy producers in an attempt to remove a perceived global oil oversupply. Their goal has been to shore up oil prices for over a year now. The oil producing countries have agreed to continue this program until the conclusion of 2018. They will convene in June to reexamine the policy.
Originally the goal of the supply reduction agreement lay in cutting back the oil inventory stockpiles of developed nations to a five year average. They have nearly accomplished this recently. Now the globe’s largest oil exporter has not expressed any indication that it wishes to do away with these over year old supply restrictions.
On the contrary, Saudi Arabia is showing signs of satisfaction that crude oil could be en route to reaching $100 per barrel imminently. The Reuters report referenced three different industry sources which it declined to name. Yet it was more than enough to cause oil levels to rally to several year highs this past week.
OPEC’s measured oil output declined to an 11 month low in the month of March. Brent reached $74.11, up approximately .9 percent as WTI touched $69.04, around .8 percent higher. As the undisputed leader of the oil cartel, Saudi policy on oil supply matters immensely to these markets. This chart shows how stock market performance is inversely related to oil prices:
Saudi Arabia Has Vested Self Interest in Higher Oil Prices
The kingdom has selfish reasons to seek higher oil prices in coming months. Even now Saudi Arabia is finalizing its upcoming sale of an intended minority stake in the largest oil company in the world, their Saudi Aramco state oil company. After listing it on their own domestic Tadawul exchange, the company plans to debut the initial public offering of Aramco on one of the world’s leading international exchanges in 2019.
CEO Amin Nasser of Aramco claims that the firm is ready for the IPO and only awaiting the government’s decision on which exchange they will list to be revealed. This listing will be the lynch pin in Saudi Crown Prince Mohammad bin Salman’s endeavors to wean the kingdom off its decades long dependence on oil. The country hopes to raise around $100 billion in cash and gain a $2 trillion valuation of the company in the process. Some analysts think that the value will be in the range of $1 trillion to $1.5 trillion in reality.
This is the main vested interest the Saudis have in boosting oil prices now. Already the OPEC cartel is anticipated to restrict oil supplies until past the end of 2018 and likely to 2019. There will be more news revealed on the plans at the June 22nd cartel meeting. It is here that they will review their policy on oil output.
U.S. Offers Strong Reaction to OPEC Price Rigging
As one of the larger consumers of oil in the world today, naturally the United States has a strong opinion on the sharply rising oil prices. Last Friday saw American President Donald Trump blast OPEC for their “artificially” increasing oil prices. His remarks temporarily caused oil prices to pull back when he tweeted:
“Looks like OPEC is at it again. With record amounts of oil all over the place, including the fully loaded ships at sea. Oil prices are artificially very high! No good and will not be accepted!”
These remarks on oil prices amounted to the first ones in Trump’s year plus long term. They followed an announcement from Saudi officials that they were still well away from reaching their stated goals of slashing a three year long oversupply to global oil markets. It was in such remarks that the three separate officials opined that the kingdom would be pleased to see oil trade in the range of from $80 to $100 per barrel soon.
OPEC Defends Its Actions
Meanwhile the OPEC and allied nation members attending the meeting in Jeddah, Saudi Arabia offered their own explanation for higher oil prices. They blamed a rise in geopolitical issues and tensions. Among their list of global worries were threats to dismantle the Iran nuclear deal, stringent sanctions against Venezuela, tensions with North Korea, and airstrikes against Syria.
The Secretary General of OPEC Mohammed Barkindo framed the results of their policies a different way. He argued that their production cuts arrangement had merely stopped the worldwide oil price level collapse of earlier years. Barkindo said this policy is:
“on course to restore stability on a sustainable basis in the interest of producers, consumers, and the global economy. We don’t have any price objective in OPEC, and not in this joint endeavor with non-OPEC. Price is not our objective. Our objective remains restoring stability… on a sustainable basis.”
The problem with this argument is that what is good for oil producers and exporters is inversely bad for major oil consumers and importers like the United States, Europe, and China in this zero sum game of global energy markets.
Gold Is the Ideal Vehicle to Protect Your Retirement Portfolio from Rising Oil Prices
Gold is ideally placed to help you safeguard the value of your investment and retirement portfolios. The yellow metal tends to rise alongside oil prices on a historical basis. It is also valued globally in U.S. dollars so performs inversely to the declining dollar in days like these. Today is a good time to start thinking about what gold goes in an IRA. You should also consider the IRA allowed storage options for your precious metals.