Posted on 03/10/2020 9:06:06 AM PDT by Hojczyk
The clash of oil titans Saudi Arabia and Russia sparked a 25% slump in crude prices on Monday, triggering panic selling and heavy losses on Wall Street's main stock indexes,
U.S. President Donald Trump spoke with Saudi Arabia's Crown Prince Mohammed bin Salman in a call on Monday to discuss global energy markets, the White House said on Tuesday.
Amin Nasser, CEO of Saudi Aramco said the oil giant would increase supply to 12.3 million barrels per day in April for customers inside the kingdom and abroad.
That's 300,000 bpd above its maximum production capacity, indicating Aramco may also free up crude from storage.
Saudi Arabia has also agreed with Kuwait to resume output from jointly operated oilfields in the so-called Neutral Zone, production which is not accounted for under Aramco's output capacity of 12 million bpd.
U.S. Treasury Secretary Steven Mnuchin told Russia's ambassador to the United States on Monday that energy markets needed to stay "orderly" amid rising concerns that extra supply from Saudi Arabia and Russia could trigger bankruptcies among higher-cost U.S. shale oil producers.
Saudi Arabia has been pumping around 9.7 million bpd in the past few months. The kingdom holds hundreds of millions of barrels of oil in storage so its can supply oil above its production capacity.
Brent oil prices jumped 10% on Tuesday above $37 per barrel after Russian energy minister Alexander Novak said Moscow was ready to discuss new measures with OPEC, effectively offering an olive branch to Riyadh.
But Saudi Arabia’s energy minister Prince Abdulaziz bin Salman appeared to rebuffed the idea.
"I fail to see the wisdom for holding meetings in May-June that would only demonstrate our failure in attending to what we should have done in a crisis like this and taking the necessary measures,” Prince Abdulaziz told Reuters.
(Excerpt) Read more at finance.yahoo.com ...
Seems to me that if the price gets too low, we should be talking about filling up the Strategic Petroleum Reserve.
By my estimates using the most recent data, we could purchase all of Saudi Arabia’s 300,000 bpd excess capacity for the next 10 weeks thus providing some stability to the oil markets. We could then sell it later once the kids are through bickering.
We would be buying low and selling high. Smart move, right?
Nope, you have to move the product on pipes, they cost money. You have to ship the product on boats, they cost money. We have our oil, it’s cheaper to put OUR oil in reserve.
Wrong.
That’s why Russia blinked first, and the Saudi oil minister rebuffed Russia’s olive branch.
Wrong again.
The Russians are in a much stronger economic position than they were in 2016 and don't have a country full of inbred militant jihadists to take care of.
MbS better watch his back or his royal head will roll.
Many Saudi engineers graduated from UT,Austin, but these hate Americans just the same.
But it was a clear prohibition in her employment contract even if she had been so inclined.
“That’s why Russia blinked first, and the Saudi oil minister rebuffed Russia’s olive branch.”
‘Wrong again.’
That (the Saudi rebuff to Russia’s hat-in-hand olive branch) is exactly what happened yesterday. The Russian economy is heavily dependent on its oil industry for jobs, foreign currency reserves, and the overall standard of living. The only other major export industry is military hardware, which is why the Kremlin is working hard to shore up old client states and develop new ones. Russia also has serious long-term demographic problems, causing Putin to renege on his long-standing promise (made in 2005) never to raise the retirement age.
My daughter was a chemistry grad student & same type of problem. The Arab students (mostly Saudi!) turned cheating on chemistry exams into an art form. They created a situation where efforts to stop them became so burdensome it impacted everyone. The university eventually just left it to the prof. Which eventually meant nothing was going to be done. The prof knew the university wouldn’t have his back if push came to shove. The school made too much money off these creeps to take any serious action !
"ABS"
ABS, while "plastic", is not known for flexibility. It tends to crack under stress, but resiliency varies with the formulation, reinforcing fibers in the mix, etc.
We shall see.
Saudi Prince Al-Waleed tried bankrupting US shale oil producers years ago but failed to stop the surging US domestic oil production. He bankrupted a few but he did not understand that most US shale oil producers simply turn off their pumps and go back to their mainstay businesses of farming and ranching.
Today, hydraulic fracturing tech is much better and more efficient although it is still not competitive with Saudi oil extraction costs. But each year the tech improves thereby lowering the cost for extraction.
The disparity in extraction costs is easily addressed with import TARIFFS.
If Saudi Arabia wants to sell cheap oil, they won’t be able to sell competitively under US imposed tariffs. This collapses their whole scheme. Better to make a deal with President Trump.
President Trump is the consummate deal-maker.
There is one other advantage to US shale oil production that dwarfs all other foreign oil producers, each barrel of shale oil extracted brings up a massive amount of natural gas (NG) that is shipped as LNG to foreign ports. Asia and Europe depend more in most cases on NG than oil.
The US holds the winning hand here and the American President knows how to play the game.
Who won’t what?
The price of shale production has come down faster than they thought. May it come down more.
They won’t go out of business (shale producers)
from the FRchives:
http://www.freerepublic.com/focus/news/3822824/posts?page=88#88
http://www.freerepublic.com/focus/news/3823066/posts?page=14#14
http://www.freerepublic.com/focus/chat/2337346/posts?page=3#3
Oil is a fungible asset. It doesn’t matter WHOSE oil goes into the SPR. What matters is that the oil is purchased at these ‘fire sale’ prices.
And BTW, most of the oil there already came from somewhere besides the US.
You guys seems like living in 17th century when Mercantilism was a thing.
Export is not everything. A lot of economic activity might come without it.
Russia is willing to hurt its own economy for geopolitical reasons.
“You guys seems like living in 17th century when Mercantilism was a thing.
Export is not everything. A lot of economic activity might come without it.”
Russia (and Saudi Arabia, too) needs foreign currency to buy imported goods, since it doesn’t produce enough goods domestically to sustain the current standard of living of its population. The only way to acquire this foreign currency (and, thus, imported goods) is to export oil, military hardware, and some precious metals. Russia produces little else of value in international markets.
A cursory reading of my previous comments on FR reveals that I am anything but a mercantilist. In fact, I have often been subject to name-calling on FR because of my advocacy of comparative advantage and the gains from international trade. (However, I am not unaware of national security concerns and the desirability of the rule of law when it comes to intellectual property theft and industrial espionage.)
” ... marginal US producers will be bankrupted under a mountain of debt, ready to come crashing down.”
Marginal (high-cost) producers are always endangered by unexpectedly low world prices. That’s the risk they take. For the US economy as a whole, low oil prices are now roughly a wash, with the losses to domestic producers offset by gains to consumers
True, and when/if they do, the assets will be snapped up by stronger hands, and the yield will endure.
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