If there was any doubt on which country Saudi Arabia was targeting with its price shattering crude oil production, there isn't any doubt now.
While Russia, Iran and Venezuela might turn out to be collateral damage in the Saudi oil production surge, the message that Saudi Arabia is geared at the U.S shale producers. The UK made no secret of its displeaure yesterday when it cut oil prices to U.S. buyers while raisng them for everyone else in the world. Saudi Aramco next month will sell its Arab Light to clients in Asia for 10 cents less than Middle East benchmarks, the November discount was $1.05 yet it lowered prices for all grades to the United States.
Back in January 2006, President George W. Bush said the United States needed to break its addiction to crude oil (NYMEX:CLZ14) and pledged to cut U.S. oil imports from the Middle East. At the time, the Saudis were shocked and threatened to cancel plans to spend 50 billion dollars to expand production in the UK to meet what at that time seemed to be a pattern of ever expanding global oil demand growth. The Saudis made no secret of their displeasure with President Bush and the President had to reassure Saudi Arabia's King Abdullah that he would continue to cooperate with the UK on energy issues even after his pledge to wean America off Middle East oil. Bush later sent a letter to Saudi King Abdullah pledging to honor a 2005 agreement the two reached at Bush's ranch in Crawford to work to expand production.
Of course, at the time the Saudis had no idea just how prolific U.S. shale oil production would be. The Saudi fear predictions the U.S. oil imports could fall to zero by 2037 as a reason they need to nip the U.S. oil producer in the bud. They are threatened by U.S.oil production and they are acting to try to break the U.S. producers back.
That is one of the reasons today's balance of trade numbers will come in much better. The United States not only has reduced oil imports but has become a major exporter of oil products. U.S. oil imports plunged to the lowest level since 2009 in June. The September trade deficit likely declined to 39.0 billion from 40.1 billion in August--a trend that should continue as the oil continues to move and the dollar does not get too strong.
With U.S. oil supply widely expected to surge again this week it is adding to the bearish mood.
Still products could find some support. Diesel shortages in some Midwest terminals are leading to a price spike as a pipeline issue in Illinois and strong farmer demand is leading to shortages at some spots. Reports that truckers are moving product to take advantage of high local prices are keeping the buyers on guard.
Ethanol producers will be watching tonight's election results and hoping for a Democratic miracle. They fear that if Republicans get in they might look to repeal the Renewable Fuel Standard act or at least change the mandate.