A fortnight ago, when crude oil production data was released in the US, NYMEX responded accordingly: contracts for WTI CL spiked 6% from its newest low, reaching 45.8 USD a barrel.
However, oil prices are still remarkably low. Naturally, major energy companies and countries with an oil based economy are the chief parties to be affected by this ongoing situation.
Saudi Arabia currently spends 60 billion USD a year on energy subsidies, but the decline in oil revenues had inflated its deficit to about 20% of the country's GDP. The low oil prices forced Saudi Arabia to consider cuts in the government subsidies for fuel, which was, until now, one of the major benefits the country's citizens enjoyed so far.
Saudi Arabia ranked 4th in the world in terms of subsidies for energy, right after Qatar, Luxembourg and Kuwait. However, while other countries in the Persian gulf (such as UAE) are cutting on subsidies, it doesn't look like Saudi Arabia is going to do so, at least not during this year or the year after.
A very plausible scenario, according to Middle East experts, sees the chaos in parts of the Middle East spreading even further, causing a massive chain reaction in the Gulf countries.
In Syria, the ongoing civil war (with a death toll of over 220,000, not including refugees and citizens dying while trying to emigrate) is a major center of unrest, attracting extremists from all over the world (including the infamous ISIS).
The future of Yemen doesn't seem any brighter: In 2014, Houthi rebels took over the government in Sana'a, which led to the fall of the Saudi backed government of Abd Rabbuh Mansur Hadi. The Houthis, backed by Iran, have gained control of a significant part of Yemen's territory and are currently resisting the Saudi Arabian-led intervention in Yemen. Both the Houthis and the Saudi Arabian-led coalition are being attacked by the Islamic State terrorist group, also located in the area.
In Iraq, Shiites and Sunnis (supported by Iran and Qatar, respectively) are fighting, with Iran-supported militias clashing with ISIS and other extremists.
All countries are spending incredible amounts of money to protect their interests in the region. This money needs to come from somewhere, and apparently - the sources are steadily depleting.
A new report from IMF suggests that the Al Saud house, the Saudi royalty, are heading towards their own demise - without massive budget cuts, the kingdom will exhaust all of its currency reserves in five years time. The mirror-image of this scenario will be Iran gaining more power and more influence in the region. In addition, with no support from its Saudi benefactors, the moderate Syrian rebels are no match for ISIS and the Syrian army - the result will be a more radical Syria, with ISIS and the Syrian government splitting the rebels' territory.
In Yemen we will see similar trends, when the Saudi-supported government will lose to the Houthis and ISIS.
The bottom line? Major proliferation of terror activities and military clashes all over the Middle East (and perhaps even Europe), as world security deteriorates.
The future may look grim for the region, but it presents us with some interesting market opportunities. The first market to react will undoubtedly be the commodities market, where we can expect a rise in wheat, sugar and corn prices.