Cafe of Broken Dreams by John scientific terrorist in action

End of the Middle East gold age?

OPEC this week announced historically the biggest cut in production following by Russia as the second largest oil producer. The target is simple to push the oil price higher, ideally somewhere around 75 USD which would be fair price King Abdullah said.

As I pointed before price is driven by the USD  much more than crude oil supply and market reaction have confirmed it. It’s looked as if traders totally ignored the OPEC statement.

Actually situation has to be very desperate. In a language of numbers OPEC cut production by 9% which means to keep their income the price would have to climb above 50 USD/barrel but the reality is quite different and price has broken long term support and fall under 40 USD/barrel. Limit cheating will be then matter of fact again in an effort to keep at least some income.

The second hard punch for OPEC has been end of the USD value/crude oil price correlation. Take a look at this chart.

US Dollar Index reflects strength of the USD to the main world currencies

As you can see when dollar was high then crude oil was low and vice versa. But few days ago something has changed and both indicators started follow one direct. This is very critical especially for the USD pegged countries  because low prices cant be compensate by higher value of dollar.

The USD pegged countries (yellow) 

How this will end resolve the USA as the biggest oil consumer and the USD producer but even now  Saxo Bank forecasts social unrest in Iran, Arabic stocks are going  down and Obama’s team speaks about reducing carbon emissions or higher gas taxes.

This is the reasons why the Middle East shouldn’t leave it without notice and start act! Dubai real estate bubble peaked same as the USA one, hotels are desert and the accommodation prices are at the record lows. But because the gap between rich and very poor is widening I’m afraid off they will choose return to the old traditions which offer more “socialization” instead of free market capitalism steps even if this situation have been caused right by these social interventions.