WTI crude oil prices have surged more than 7 percent in the past two days following surprise news of an OPEC production cut deal. On Wednesday, OPEC agreed to cut global crude oil production from 33.4 million barrels per day to an anticipated range of 32.533 million barrels per day.
While oil investors wait to see the details of the OPEC deal and how high they will carry oil prices, Congress may have done its part to derail the rally.
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On Wednesday, the Senate and the House of Representatives voted to override President Obamas veto of a controversial bill that would allow 9/11 victims and their families to pursue legal action against the Saudi Arabian government.
Saudi Arabia has issued multiple warnings to the United States not to allow the bill to pass. Back in June, Saudi Minister Adel al-Jubeir told reporters that approving the Justice Against Sponsors of Terrorism Act (JASTA) bill would not be in the U.S.s best interest. Al-Jubeir warned that the law might negatively impact investor confidence in the U.S. Saudi Arabia currently owns between $500 billion and $1 trillion in U.S. government Treasury bonds and other assets.
In addition to Obamas opposition to the bill, the CEOs of Dow Chemical Co (NYSE:DOW) and General Electric Company (NYSE:GE) both sent letters to Congress warning of the potential economic dangers of a souring diplomatic relationship with Saudi Arabia. Defense Secretary Ash Carter also petitioned Congress not to reject the veto, saying that the bill would threaten important counterterrorism efforts abroad.
While the sale of U.S. Treasuries would be the more likely route of retaliation for Saudi Arabia, the Kingdom could also choose to abandon the new OPEC agreement and once again take aim at the struggling U.S. oil & gas industry. While the average production cost of a U.S.-produced barrel of oil is between $20 and $25/bbl, Saudi Arabia produces oil at less than $10/bbl and could easily afford lower oil prices.
So far, at least, the market seems to think that Saudi Arabia is simply bluffing. In the past two days, the United States Oil Fund LP (ETF) (NYSE:USO) is up 7.3 percent and the iShares Barclays 20+ Yr Treas. Bond (ETF) (NASDAQ:TLT) is down just 0.06 percent.
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