Russia drags down the world economy - Oil prices fall by 20% - Final nail in the coffin?

[CGW]

The title of the thread is typical of the anti Russian sentiment that the media constantly runs with, "Russia drags down world economy" by not agreeing to play ball with OPEC? silly me was thinking it was a free market economy we were in, blame the nasty Russians & anyone else rather that face the truth?

[Logosone]

13 minutes ago, CGW said:

The title of the thread is typical of the anti Russian sentiment that the media constantly runs with, "Russia drags down world economy" by not agreeing to play ball with OPEC? silly me was thinking it was a free market economy we were in, blame the nasty Russians & anyone else rather that face the truth?

I have no anti-Russian sentiment whatsoever.

 

It just so happens that Russia was the one that walked away from the plan to cut production to keep oil prices stable.

 

The Saudis were prepared to cut production. It was the Russians that were not. Had they agreed to cut production we would have had the opposite effect, the oil price would have gone up.

 

So the Saudis exarcebated the situation by cutting prices extra deep, to punish Russia, but there is a good case to be made that it was in fact Russia's refusal to go along with cutting production that caused this.

[CGW]

4 minutes ago, Logosone said:

So the Saudis exarcebated the situation by cutting prices extra deep, to punish Russia, but there is a good case to be made that it was in fact Russia's refusal to go along with cutting production that caused this.

So it was a Saudi induced price war that bought about the crash, this time they will cripple the "Shale" drillers, last time they failed, underlying tactic?

[ChouDoufu]

i thought the plan was to continue to maintain the current cuts until the meeting in early june.  there was nothing stopping the saudis and the rest of opec from cutting production on their own.

 

there was no need for russia to bow to the saudi demands. 

 

the price cut and production increase is the same kind of extortion used by erdogan flooding europe with refugees.

[Logosone]

Well, when the Russians made clear that they would be seeking market share, at the expense of prices clearly they would have considered that the Saudis, given their reserves may do the same.

 

Yes, the cuts by the Saudis were extreme, but given the Russian's intention not to support Saudi demands for a production cut perhaps somewhat caused by Russia's actions?

 

Yes, last time they failed, will be interesting to see if the Americans will learn from this. Their flooding of the market with oil to depress prices had very negative consequences, especially for them.

 

One could argue the Americans caused it.

[connda]

8 hours ago, Logosone said:

Following an announcement by the Russians it is clear that OPEC and Russia could not agree on measures to keep the oil price stable. On the contrary they are now in an open price war and the price of oil is in free fall, down 20% as of this morning.

Russia knows that it can extract oil at the $25 range and still make a profit.  And they understand that at $25 the US fracking industry goes belly up.  Consider it Russia's answer to US sanctions.  What comes around...........

[connda]

7 hours ago, Logosone said:

So my best guess, the Russians did not want to take huge cuts and believe they can live with the lower prices, that that is preferable to cuts, and as a nice side play they take out US shale oil producers?

Don't rule out a military strike on Iran.  It's a sure-fire way to get the price of oil back up over $50/barrel in a jiffy.  At this point, I'm thinking it's about the only short-term play to save the fracking industry because there is no "long-term" for this industry.  They soon go bankrupt.  It's probably a good time to invest in quality oil stock as they crater.  

[CGW]

1 hour ago, connda said:

slashing official pricing for its crude and making the deepest cuts in at least 20 years on its main grades, in an effort to push as many barrels into the market as possible."

& they did it prior to the "meeting" bully boy negotiating tactics that failed it appears?

[Logosone]

3 hours ago, ChouDoufu said:

i thought the plan was to continue to maintain the current cuts until the meeting in early june.  there was nothing stopping the saudis and the rest of opec from cutting production on their own.

 

there was no need for russia to bow to the saudi demands. 

 

the price cut and production increase is the same kind of extortion used by erdogan flooding europe with refugees.

 

No, no, maintaining current cuts was just one part. The other part was to implement more cuts.

 

" Following the conclusion of the OPEC ministerial meeting on Thursday, the group agreed to recommend to the wider OPEC+ group additional cuts of 1.5MMbbls/d through until the end of 2020, whilst also extending current cuts of 2.1MMbbls/d through until year-end. The key was to ensure that Russia was on board. "

 

https://think.ing.com/articles/the-opec-break-up-its-not-you-its-me/

 

Obviously the Saudis felt there was a need for Russia to also cut production, the less producers cut production the less effective a reduction becomes.

[Logosone]

History repeats itself, doesn't it? Oil shocks of the 1970s all over again.

 

And yes, I know oil is less important now, a smaller part of the overall.

 

But still.

[ChouDoufu]

9 minutes ago, Logosone said:

 

No, no, maintaining current cuts was just one part. The other part was to implement more cuts.

 

" Following the conclusion of the OPEC ministerial meeting on Thursday, the group agreed to recommend to the wider OPEC+ group additional cuts of 1.5MMbbls/d through until the end of 2020, whilst also extending current cuts of 2.1MMbbls/d through until year-end. The key was to ensure that Russia was on board. "

 

https://think.ing.com/articles/the-opec-break-up-its-not-you-its-me/

 

Obviously the Saudis felt there was a need for Russia to also cut production, the less producers cut production the less effective a reduction becomes.

sure, saudis felt the need.  opec agreed to recommend to the others.

 

the "other part" was all opec's plan.  don't see where russia was under any obligation to serve the saudis.  russia not colluding with the saudis to artificially raise oil prices isn't a bad thing.

 

if the saudis decide to blow up the market it's all on them.

 

 

 

[Logosone]

13 minutes ago, ChouDoufu said:

sure, saudis felt the need.  opec agreed to recommend to the others.

 

the "other part" was all opec's plan.  don't see where russia was under any obligation to serve the saudis.  russia not colluding with the saudis to artificially raise oil prices isn't a bad thing.

 

if the saudis decide to blow up the market it's all on them.

 

 

 

Well, it was a bad thing for me because I lost money betting USD CAD would go down. If the Russians had agreed to cut production to keep oil prices stable, the way the whole of OPEC had agreed USD CAD would have fallen and I would have made a tidy sum of money.

 

Russia had no obligation to prevent the world economy from going into meltdown, true. But it's not all on the Saudis. If the Russians had agreed to cut oil production then what we are seeing now would not be happening. And many analysts are already predicting that Russia will only hold out this way until autumn at the most. Then they'll back at the table.

 

It seems a bit pointless. Billions wiped off companies, including Russian companies. All the Russians had to do was to cut production a little.

[Operator2002]

First of all it is a nail to the coffin of outgoing tourism in Russia - it is double hit coupled with coronovirus and closure of whole destinations like Italy. If later this year there will be any problem with Turkey - the main holiday destination for Russian people - it will be probably the collapse of this industry and the bankruptcy of many travel companies in Russia :(

On the other hand the inner and inbound tourism maybe increase.

[mshs]

13 hours ago, ChouDoufu said:

i don't understand the thread title?  russia did it?

 

there was an opec+ meeting at which there was no agreement on production cuts.  in response, saudi decided to increase production and drastically cut prices.

Correct.

 

Russia had zip to do with it.

 

SArabia was the "restrained" producer, hoping to steady corona-led falling prices.  With 1 fell swoop (unrestrained production) SArabia intends to punish Russia and the frackers in the USA.

 

Once the Russians and the frackers are wounded and priced out of the market, SArabia hopes to reduce supply, assuming ofcourse they can withstand the $30/barrel blow to their economy.

It is likely, they are prepared, the pretenders to the throne recently charged with espionage and the unemployed youth are up against the wall since Trump smashed the caliphate.

 

SArabia has the Ayrab world's lowest home-ownership rate, lower than the neighboring 3rd world Egyptian home-ownership rate.  SArabia's response?  Allah be praised, you are not living among the he 1/2 millions homeless in CA.

 

 

 

 

[mshs]

7 hours ago, connda said:

Russia knows that it can extract oil at the $25 range and still make a profit.  And they understand that at $25 the US fracking industry goes belly up.  Consider it Russia's answer to US sanctions.  What comes around...........

Russian breakeven for oil in 2020 is $42/barrel.

 

[Logosone]

6 hours ago, mshs said:

Correct.

 

Russia had zip to do with it.

 

 

Russia had a lot do with it. They were the ones who unilaterally decided not to cut oil production. 

 

That's why the Saudis were forced to fight for market share aggressively. Because it became clear that cutting production would not work. If Russia does not agree to cut oil production.

[Logosone]

Wall street actually suspended trading for a while yesterday.

 

That's how bad things were.

 

But there should be a dead cat bounce now, with the announcement by Trump, it seems to have reset market mood a bit.  

[ExpatOilWorker]

15 hours ago, Logosone said:

 

One other question, is shale oil production sustainable? The way I understand it there are various ways to produce shale oil. Do they really just require rocks? Would that not mean that there are huge reserves for Fracking/Shale oil? So this could go on for a while, if it is economically viable?

Oil reserves are tricky to understand as more is discovered over time.

Saudi had reserves of 185 billion bbls in 1985, then they produced 120 billion bbls and now they have 258 billion bbls.

185 - 120 = 258. 

You can do a similar exercise for US reserve numbers.

But, yes there is plenty of shale oil it just takes a lot of drilling and hydraulic fracturing to produce it.

US shale was already running out of steam, so it is pointless the destruction Saudi have unleashed now. They will wreck an amazing industry. 

[ExpatOilWorker]

16 hours ago, Logosone said:

 

That would be better, yes.

 

Very interesting, so it could last less than a year?

Yes, there is a very strong indication that $35 oil will not last very long and it is: contango.

Contango means that future crude price is higher than present price and that is not sustainable.  Futures should always be lower, you get a discount for paying now with a delivery at a future date.

Last time we saw contango was in 2008 when oil went from $147 to $33, but it very quickly came back to a more comfortable level of $60-80.

The impact of the coronavirus demand destruction is of course the big unknown here.

[Logosone]

Thank you for this. Very interesting.

 

So I am starting to think that neither the Saudis nor the Russians are seriously attempting to kill of Shale oil. This was just a press interpretation to make it interesting.

 

The Saudis and Russians must know that availability of shale oil, which has been around for hundreds of years is not computable and may well exceed many decades, possibly centuries.

 

So what the Saudis and Russians are doing is try to defend market share, against a relentless onslaught of US and Canadian shale oil depressing the oil price.

[Logosone]

4 minutes ago, ExpatOilWorker said:

Yes, there is a very strong indication that $35 oil will not last very long and it is: contango.

Contango means that future crude price is higher than present price and that is not sustainable.  Futures should always be lower, you get a discount for paying now with a delivery at a future date.

Last time we saw contango was in 2008 when oil went from $147 to $33, but it very quickly came back to a more comfortable level of $60-80.

The impact of the coronavirus demand destruction is of course the big unknown here.

 

We already saw how a short US announcement has reset market mood somewhat today. The prices of major companies' shares have gone down so far that there is a once in a lifetime opportunity to buy now, and we should see a rebound short term.

 

When coronavirus goes away, we should see a general return of risk-on sentiment.

[ExpatOilWorker]

10 minutes ago, Logosone said:

Thank you for this. Very interesting.

 

So I am starting to think that neither the Saudis nor the Russians are seriously attempting to kill of Shale oil. This was just a press interpretation to make it interesting.

 

The Saudis and Russians must know that availability of shale oil, which has been around for hundreds of years is not computable and may well exceed many decades, possibly centuries.

 

So what the Saudis and Russians are doing is try to defend market share, against a relentless onslaught of US and Canadian shale oil depressing the oil price.

Shale is a niche market within the oil industry. If Putin and MBS have a strategy in all this madness, then they could be targeting conventional non-OPEC production. 

Each year about 6 million bbls/day of production is lost due do natural decline. Infield drilling keep production balanced, but if projects are delayed or canceled production will gradually decline and then Russia and Saudi can fill this supply gap. 

[Logosone]

That would make more sense actually, to damage the very substantial US and Canadian conventional oil producers, who need much higher prices to be profitable than Russia.

 

So the Russians defend market share, AND damage their high cost US and Canadian competitors.

 

For shale oil being a niche market it has had a considerable effect on lowering oil prices then, and forcing OPEC to take production cuts and price cuts?

[connda]

21 hours ago, Logosone said:

History repeats itself, doesn't it? Oil shocks of the 1970s all over again.

 

And yes, I know oil is less important now, a smaller part of the overall.

 

But still.

The market is being flooded with oil, not the other way around as in the 1970s. 

[observer90210]

good news...time to massively and wisely invest in oil shares...? or not ?...when it goes bad for the big market actors, it's usually the consumer who gains....

Edited March 10, 2020 by observer90210

[dallen52]

Currently in Oz.

Three weeks ago it was $1.70 a litre petrol. 

Today $1.20.

They are talking about $1 next week...

[Logosone]

Not just oil shares. These are generational buying opportunities. Exxon? Look at the dividend.

 

But you'd have to accept that the environment for oil companies will be challenging for a long while. Will they keep giving dividends in that scenario?

 

The market is being flooded with oil, not the other way around as in the 1970s.

 

Excellent point well made.

 

This is all great for trading Forex as well, the volatility has returned. Markets are alive with the smell of fear and greed.

 

Even if the US closed its markets for a few hours yesterday, good move really, even if it shows how bad things got. 

[Logosone]

Just now, dallen52 said:

Currently in Oz.

Three weeks ago it was $1.70 a litre petrol. 

Today $1.20.

They are talking about $1 next week...

This should be good for the Ozzie Dollar though, eventually.

 

The cheap oil should help China at some point, which would help the AUD.

[metisdead]

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[ExpatOilWorker]

There is no end in sight to this madness.  Now Saudi wants to turn on the taps and flood the market with 12.3 million bbls/day.

One aspect we haven't considered yet, is that Russia and Saudi is trying to cement demand creation. 

Hence, they want to delay the transformation to renewables.

We clearly see that is less regulated markets, when oil is cheap people buy bigger cars and drive more, creating long term demand.