Tag Archives: Oil

The Inevitable Outcome Of The Oil Price War, by Simon Watkins

MBS is playing tiddlywinks; Vladimir Putin is playing nine-dimensional chess. From Simon Watkins at oilprice.com:

Putin MBS

One might reasonably posit that when Crown Prince Mohammed bin Salman (MbS) signalled that Saudi Arabia was once again going to produce oil to the maximum to crash oil prices in a full-scale oil price war, Russian President Vladimir Putin probably fell off the horse he was riding bare-chested somewhere in Siberia because he was laughing so much. There is a phrase in Russian intelligence circles for clueless people that are ruthlessly used without their knowledge in covert operations, which is ‘a useful idiot’, and it is hard to think of anyone more ‘useful’ in this context to the Russians than whoever came up with Saudi’s latest ‘plan’. Whichever way the oil price war pans out, Russia wins.

In purely basic oil economics terms, Russia has a budget breakeven price of US$40 per barrel of Brent this year: Saudi’s is US$84. Russia can produce over 11 million barrels per day (mbpd) of oil without figuratively breaking sweat; Saudi’s average from 1973 to right now is just over 8 mbpd. Russia’s major oil producer, Rosneft, has been begging President Putin to allow it to produce and sell more oil since the OPEC+ arrangement was first agreed in December 2016; Saudi’s major oil producer, Aramco, only suffers value-destruction in such a scenario. This includes for those people who were sufficiently trusting of MbS to buy shares in Aramco’s recent IPO. Russia can cope with oil prices as low as US$25 per barrel from a budget and foreign asset reserves perspective for up to 10 years; Saudi can manage 2 years at most.

Continue reading

Putin Unleashes Strategic Hell on the U.S., by Tom Luongo

Maybe demonizing Vladimir Putin, groundlessly blaming him for conspiracies to interfere in US politics, moving huge NATO forces to Eastern Europe’s border with Russia, abrogating long-standing arms control treaties, and trying to throw monkey wrenches into the Nord Stream 2 pipeline weren’t such good ideas after all. From Tom Luongo at tomluongo.me:

I am an avid board game player. I’m not much for the classics like chess or go, preferring the more modern ones. But, regardless, as a person who appreciates the delicate balance between strategy and tactics, I have to say I am impressed with Russian President Vladimir Putin’s sense of timing.

Because if there was ever a moment where Putin and Russia could inflict maximum pain on the United States via its Achilles’ heel, the financial markets and its unquenchable thirst for debt, it was this month just as the coronavirus was reaching its shores.

Like I said, I’m a huge game player and I especially love games where there is a delicate balance between player power that has to be maintained while it’s not one’s turn. Attacks have to be thwarted just enough to stop the person from advancing but not so much that they can’t help you defend on the next player’s turn.

All of that in the service of keeping the game alive until you find the perfect moment to punch through and achieve victory. Having watched Putin play this game for the past eight years, I firmly believe there is no one in a position of power today who has a firmer grasp of this than him.

Continue reading

How Black Swans Are Shaping Planet Panic, by Pepe Escobar

One interesting possibility raised in this article is that Russia’s decision not to support OPEC and let the price of oil fall was directed at US shale oil producers and was payback for the Trump administration’s opposition to Nord Stream 2. From Pepe Escobar at consortiumnews.com:

Is the planet under the spell of a range of Black Swans – a Wall Street meltdown caused by an alleged oil war between Russia and the House of Saud, plus the uncontrolled spread of Covid-19 – leading to an all-out “cross-asset pandemonium,” as billed by Nomura, the Japanese holding company?

Or, as German analyst Peter Spengler suggests, whatever “the averted climax in the Strait of Hormuz had not brought about so far, might now come through ‘market forces’”?

Let’s start with what really happened after five hours of relatively polite discussions last Friday in Vienna. What turned into a de facto OPEC+ meltdown was quite the game-changing, plot twist.

OPEC+ includes Russia, Kazakhstan and Azerbaijan. Essentially, after enduring years of OPEC price-fixing – the result of relentless U.S. pressure over Saudi Arabia – while patiently rebuilding its foreign exchange reserves, Moscow saw the perfect window of opportunity to strike, targeting the U.S. shale industry.

Shares of some of these U.S. producers plunged as much as 50 percent on “Black Monday.” They simply cannot survive with a barrel of oil in the $30s – and that’s where this is going. After all, these companies are drowning in debt.

A $30 barrel of oil has to be seen as a precious gift/stimulus package for a global economy in turmoil – especially from the point of view of oil importers and consumers. This is what Russia made possible.

And the stimulus may last for a while. Russia’s National Wealth Fund has made it clear it has enough reserves (over $150 billion) to cover a budget deficit from six to 10 years – even with oil at $25 a barrel. Goldman Sachs has already gamed a possible Brent crude at $20 a barrel.

Continue reading

And the Winner is? Deflation. By Tom Luongo

While central banks may try to inflate their way out of a debt deflation, when the bubble they’ve blown is as big as the current “everything” bubble, such efforts will be fruitless. From Tom Luongo at tomluongo.me:

Back in August I penned a post called, “The Battle of the ‘Flations Has Begun.

With an historic 2000 point drop in the Dow Jones Industrials on Monday in response to Saudi Arabia and Russia declaring an oil price war on, well, everyone it’s clear that one of the two ‘flations, deflation, has won out.

In retrospect the timing out that post was pretty good, because just a few weeks later the repo markets seized up, SOFR zoomed to an all-time high of more than 10% and the Fed was awoken from its slumber to begin intervening to keep markets from collapsing.

It initiated a reflation trade based on the hope that the Fed just being there was all that was needed to restore confidence in global markets.

In that post I made the point that the choice between inflation and deflation is a non-choice. They are two sides of the same coin. The question is only who benefits from which side.

Those in power always choose inflation because, in their minds, it is less upsetting to the social order than deflation.

And their power rests on maintaining the current social order.

Deflation benefits savers and, frankly, normal people who don’t have access to new money at the lowest available prices, those set by the Fed’s discount window.

It gives them back power stolen from them through inflation.

The media helps this narrative limp along bamboozling all of us with poorly-conceived first order analysis of why we want inflation while refusing to admit they are a recipients of this government/central bank largess through advertising fees paid with a portion of this fake capital.

Continue reading

The Great American Shale-Oil Bust Turns into Massacre, by Wolf Richter

There is carnage in the oil patch. From Wolf Richter at wolfstreet.com:

Shares of shale oil drillers collapsed by 25%-50% today. Their bonds got massacred. Saudi-Russia price-war strategy appears successful in wiping out investors in the US shale-oil sector.

It was so chaotic and brutal in the crude oil market today that the EIA, which is part of the US Department of Energy, emailed out this statement: “We have delayed the release of the Short-Term Energy Outlook to allow time to incorporate recent global oil market events. The outlook will now be released Wednesday, March 11, at 9:00 a.m.”

Shares of Occidental Petroleum, which is heavily involved in US shale oil and gas, collapsed by 53% today to $12.51. They’re down 85% since October 2018, when phase two of the Great American Oil Bust set in, with phase one having commenced in July 2014:

Oxy’s bonds – those that even traded – collapsed today. For example, this $750 million 30-year senior unsecured bond, with a coupon interest of 4.1%, closed on Friday at 92.5 cents on the dollar. Like many bonds, they don’t trade much, but are stuck in bond funds or held by institutional investors, and it’s hard to sell them because there are not many buyers.

Continue reading

Russia Just Told the World, “No.” by Tom Luongo

For a supposed global pariah, many nations want a lot from Russia. Not surprisingly, Russia’s response is often no. From Tom Lungo at tomluongo.me:

There is real power in the word “No.”

In fact, I’d argue that it is the single most powerful word in any language.

In the midst of the worst market meltdown in a dozen years which has at its source problems within global dollar-funding markets, Russia found itself in the position to exercise the Power of No.

Multiple overlapping crises are happening worldwide right now and they all interlock into a fabric of chaos.

Between political instability in Europe, presidential primary shenanigans in the U.S., coronavirus creating mass hysteria and Turkey’s military adventurism in Syria, the eastern Mediterranean and Libya, markets are finally calling the bluff of central bankers who have been propping up asset prices for years.

But, at its core, the current crisis stems from the simple truth that those prices around the world are vastly overvalued.

Western government and central bank policies have used the power of the dollar to push the world to this state.

And that state is, at best, meta-stable.

But when this number of shits get this freaking real, well… meeting the fan was inevitable.

And all it took to push a correction into a full-scale panic was the Russians saying, “No.”

Continue reading

Shale Drillers Need A Miracle To Keep Production From Falling, by Irina Slav

Millions of speculators can attest to the oil drillers: the market never moves the way you need it to move, especially when you need it the most. From Irina Slav at oilprice.com:

Shale Drillers

With West Texas Intermediate falling below $45 a barrel after the latest burst in coronavirus panic, U.S. shale oil and gas producers are feeling growing heat. Except for the Permian, where production of both oil and gas is still growing, the U.S. shale patch is retrenching. And the Permian may soon follow suit.

In its latest Drilling Productivity Report, released earlier this month, the Energy Information Administration said oil production had declined across six of the seven major shale plays in the country, by some 21,000 bpd. In the Permian, however, production rose by 39,000 bpd, tipping the total into a net increase of 18,000 bpd. Now, while this confirms the star status of the Permian, it also suggests that oil production growth is becoming uneconomical in other shale plays.

A recent report on oil and gas production trends in 2019 showed the slowdown is not a sudden one. Titled “Rockies and Bakken in Focus”, the report, by Enverus, says growth in production in these regions had slowed to a crawl amid the low oil prices. Pipeline constraints, the oil and gas info provider noted, were also stifling production growth.

Continue reading