Oil experts have been closely monitoring the energy sector after the world’s biggest crude exporters failed last month to reach an agreement on an oil-production freeze.
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Saudi Arabia, the world’s largest oil exporter, refused to cap oil production to January’s levels.
Former Goldman Sachs (NYSE:GS) partner Peter Kiernan said on FOX Business Network's Varney & Co. that the developments in Saudi Arabia indicate there is a direct connection between the price of oil and the stock market in the United States.
“What’s going on in Saudi Arabia is they intend to remain king of the jungle. They make about one out of every eight barrels of oil that’s produced and they are producing now for market share,” Kiernan told host Stuart Varney.
According to Kiernan, the underlying factor for continuing low oil prices is Saudi Arabia increasing production despite ramp up in Nigerian crude production and disruptions in Venezuela.
“There have been disruptions that are temporarily, but if you look at the fundamentals, the long term, what we gotta see is a point where oil supply and oil demand meet. Right now, there’s more oil than we need.”
Economic and political turmoil in Venezuela has lead the OPEC member to reach an oil-for-loans deal with China, allowing the economically-stricken South American country some breathing room for its debt payments.
Kiernan says the oil loan deal with China is a “death rattle” as Venezuela has already borrowed some $50 billion over the last decade.
“At a $100 a barrel it’s a land of milk and honey and this was one of those countries that was basically run as a welfare state and they saved nothing for the raining day. Well folks, its pouring rain outside.”
Oil is nearing a 7-month high trading slightly below $50 a barrel.