"With all the supply issues we've had from all the countries throughout the Arab spring, the Saudi's have consistently filled the gap," said John Kilduff of Again Capital. "We have to watch if they would, not use oil as a weapon, but as a tool to teach us a lesson that they are unhappy."
News reports Tuesday quoted sources saying that Prince Bandar Bin Sultan al-Saud, the kingdom's respected and powerful intelligence chief, told European diplomats last weekend that he plans to cut back cooperation with the U.S. on arming and training Syrian rebels, in protest of U.S. policy in the region.
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"I don't think it's going to affect our oil relationship," said Andrew Lipow, president of Lipow Oil Associates. "But I do think there's a lot of turmoil in the Middle East, and you certainly have the Saudis—who dislike the Iranians—upset about the fact there could be a thawing relationship between the U.S. and Iran. ... The Saudis have been showing their displeasure for some time."
Lipow said the U.S. will continue to be an important market to Saudi Arabia, which owns 50 percent of the Motiva refinery in Texas in a joint venture with Shell.
"They just finished spending $10 billion in Port Arthur on the expansion," he said.
Iran's new president Hassam Rouhani has been on a "charm offensive," since visiting the U.N. last month. He received a historic phone call from President Barack Obama as he was leaving New York, breaking 30 years of silence between leaders of the two countries.
Rouhani has said Iran has no intention of developing nuclear weapons. Analysts do not expect sanctions to be lifted any time soon, even if there is progress in the talks. But Reuters reported Tuesday that Iran is already reaching out to its old oil buyers and is talking price cuts if sanctions are lifted.
As for Syria, the Obama Administration was adamant about making the regime there accountable for the deaths of civilians from a gas attack. The U.S. prepared to bomb the country but reversed course at the last minute and the UN has now taken the lead.
Saudi Arabia had been lobbying for the temporary seat on the Security Council, so it was surprising when the kingdom turned it down, citing the council's ineffectiveness in dealing with Syria and the Israeli-Palestinian conflict.
Brent crude, reflecting the international oil price, ticked slightly higher on the report but slipped back. West Texas Intermediate, on the other hand, was sharply lower after delayed U.S. inventory data showed a supply buildup in domestic crude.