Putin says Russia ready to cooperate on cutting oil production

France24 ^ | April 4, 2020

[NorseViking]

I learned over years that the markets aren’t really rational.
You need to count actual effect of the production cuts to determine what is better for your industries to displace your competitors and sell more at low price or to make cuts and sell less at premium altogether with the rest.
It doesn’t mean the markets would precisely follow your expectations.
They tend to overreact.
One thing for sure no matter how good it is to have a cheap gas oil shouldn’t cost $20. It simply drags the rest of the markets with it.
And if Trump wants foreign producers to cut production to bring price up it shouldn’t be used for unfair advantage of US producers. I am not saying their interests should be ignored but then they shouldn’t brazenly use the cuts Trump is asking for to replace foreign offer.
All in all even with dwindling demand in the absence of these feuds the price wouldn’t be that low.

[Paul R.]

True, but I don’t think those other “serious guys” win that game.

All that may not matter, because the fundamental problem is that demand is low: SA and Russia can cut production to try to raise prices to a place where they are comfortable, but then the US producers can compete and now SA and Russia are back to selling oil for, oh, $45 or $50 at lower volume than they were in 2019.

[Paul R.]

I agree, actually, but the problem for SA and Russia is that the US sets the price “roof” now. Say oil gets back to $45 or $50 a barrel, and SA and Russia are pumping 20% less when it all works out. Sure, I’ve argued here before that they can endure that for a while due to low production costs, but, they need higher profits than that in the long run, especially when demand is down.

A lot of this depends on how quickly COVID-19 is subdued, and how much the world economy rebounds, but the prospects for the world economy look rather bleak for some time, I think.

[NorseViking]

You are partially right. The point is that the prices you wrote are absolute minimum for the average US producer to stay afloat. Oil frackers need higher price for the better profit too and more so than other producers not counting basket cases like Venezuela. US oil market is a typical boom and bust operation messing up markets globally in this capacity big time. As the price is near $80 they get super profitable and their output is enough to affect global price at boom causing it it fall. That immediately creates a situation with the price getting lower than their susceptible level but still enough for the foreign producers. That leads to a crash and burn and over a very short period of time. In that sense it is not really a good idea to run a US fracking operation near the solvency price level. You are always only a step away from bankruptcy. It is time for the banks and investors to start noticing it. And forń the frackers they need to develop some standards to become more stable.

[taildragger]

LS,

Could this be No. 10, it caught my eye on the 27th...

https://www.thejakartapost.com/news/2020/03/27/us-increases-support-for-taiwan-in-recognition-battle-with-china.html

[LS]

Yep.