By Bloomberg. “The Kremlin has decided to sacrifice OPEC+ to stop U.S. shale producers and punish the U.S. for messing with Nord Stream 2,” said Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank. “Of course, to upset Saudi Arabia could be a risky thing, but this is Russia’s strategy at the moment – flexible geometry of interests” . . .
When the coronavirus started devastating Chinese economic activity in early February – cutting oil demand in Saudi Arabia’s biggest customer by 20% — Prince Abdulaziz tried to convince [Russian Energy Minister Alexander] Novak that they should call an early OPEC+ meeting in response to cutback supply. Novak said no. The Saudi king and Putin spoke by phone – it didn’t help. . .
In the short run, Russia is in a good position to withstand an oil price slump. The budget breaks even at a price of $42 a barrel and the finance ministry has squirreled away billions in a rainy-day fund. Nonetheless, the coronavirus’s impact on the global economy is still unclear and with millions more barrels poised to flood the market, Wall Street analysts are warning oil could test recent lows of $26 a barrel. (Read more from “Putin Declares War on American Oil Production” HERE)
Opening the Floodgates of Oil Production Forcing Prices Down
By Brian Sullivan. Vladimir Putin just sparked what could end up being one of the ugliest oil price wars in modern history, and American oil and gas companies may be the victims.
This weekend Saudi Arabia dropped the oil bomb. It not only cut its forward crude price to Chinese customers by as much as $6 or $7 per barrel, but is also reportedly looking to raise its daily crude output by as many as 2 million barrels per day into an already oversupplied global market. Look out below.
The move by the Saudis is both a market share grab and a loud signal to Moscow that it’s done playing games. The dramatic action is in response to a contentious, and ultimately failed, OPEC meeting in Austria on Friday. OPEC members laid out a proposal to further cut oil output quotas by as much as 1.5 million barrels per day. [And it] couldn’t occur at a worse time. Coronavirus is already slamming global oil demand and crude prices have fallen 30% this year . . .
It′s not media hyperbole to call what happened this weekend in the oil markets “historic.” When the Russians walked out of OPEC’s Austria headquarters, it suddenly became every country – and every U.S company – for itself. A race to the top in production and a race to the bottom in prices. (Read more about the oil production crisis HERE)
US Oil Production May Prove Resilient
By Jason Lemon. Under Trump, the U.S. has surpassed Saudi Arabia and Russia to become the world’s biggest oil producing nation, largely spurred by the expansion of fracking. Saudi Arabia had tried unsuccessfully to flood the oil market and reduce prices drastically to maintain its dominance back in 2014. But U.S. production proved more resilient than the Saudis anticipated.
Some analysts are suggesting that Russia may similarly be underestimating or misunderstanding how the U.S. oil industry will respond.
“While the crash in oil prices that began in late 2014 [due to Saudi Arabia flooding the market] did ultimately result in hundreds of shale producers declaring Chapter 11 bankruptcy, the net result of that process is that most of those companies reorganize themselves and come back with far less debt load,” David Blackmon, an independent energy analyst and consultant, wrote for Forbes.
“The strategy also fails to recognize that most producers have already put hedges in place for most of their equity production through the remainder of 2020 and beyond,” he noted. (Read more about how US oil production may respond HERE)