Oil price wavers as traders eye Saudi Arabia reaction to Khashoggi case
Saudi Arabia could "weaponise" its dominance of the oil market if it is hit with sanction by the US government over the missing Saudi journalist Jamal Khashoggi, analysts suggested on Tuesday amid a wobble in oil prices.
Turkish officials accused the Saudi government of ordering the murder of the journalist after he was last seen entering the Saudi consulate in Istanbul in early October.
As information on the case comes to light, pressure on the US government is building to sanction Saudi Arabia if the Turkish allegations are proven. President Trump has already promised to do so if this is the case.
Saudi Arabia was preparing an alternative explanation, the New York Times reported overnight, that Khashoggi died in "an interrogation gone wrong".
Turkish officials, who claim to have audio and possibly video evidence proving Khashoggi was killed in the Saudi consulate, have alleged that one of the 15 Saudi individuals who flew in and out of Istanbul on private jets on 2 October was an autopsy expert who carried a bone saw.
On Sunday the Saudi Arabian government issued a statement emphasising its “vital role in the global economy” and any action taken upon them would be met with “greater action”.
Taking this as a veiled threat regarding hikes in oil prices, Warren Patterson, a commodities analyst at ING, told CNBC on Tuesday: "If this is something the Saudis were allowed to do, they'd be really shooting themselves in the foot. In the short to medium term we'll definitely see an incremental amount of demand destruction, but the bigger issue is in the longer term."
With problems in the oil market such as Venezuela's collapsing economy and the U.S. sanctions on Iranian exports, any Saudi move would jolt prices upward.
Craig Erlam, analyst at Oanda said: “Saudi Arabia has a number of options at its disposal for responding to US sanctions, including causing severe disruption in the oil market if it suddenly reduced output in what is already a tight market. Prices have already risen to levels not seen in four years and if the Saudi’s decide to use this as a weapon, it could cause prices to soar which would be very damaging for the global economy. There is a hope that the self-harming nature of such a move would deter such action.”
President Donald Trump suggested on Monday saying that “rogue killers” were behind the disappearance and insistent denial from Saudi Arabian King Salman bin Abdulaziz of any involvement in the case.
Trump softened his stance when he told reporters on Monday that King Salman seemed truthful: “He didn’t really know, maybe, I don’t want to get into his mind but it sounded to me like maybe these could have been rogue killers, who knows?” Trump said. “His denial to me could not have been stronger that he had no knowledge. And it sounds like he and also the crown prince had no knowledge.”
Naeem Aslam, a market analyst at Think Markets, said: “ Whether Trump really adopts a tough stance against Saudi Arabia, remains to be seen. In the meantime, the Saudi stock index plunged nearly 7% during the session on Sunday after Trump’s initial comments and bounced back up yesterday after his softer tone.”