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Oil Apocalypse . . . . Putin said, "Nyet" to Mohammed bin Salman

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(edited)

I think Putin understood that even a 1.5 million bbl cut would do nothing more than temporarily support oil price.  Russia probably tried to force a deal in exchange for their cooperation

Just like they received a sweetheart deal at the December OPEC meeting. Their condensate no longer counts as oil (1.4 mm bbls/day)

Notice Russia's statements up to the actual meeting.  "We're fine with these oil prices" , .  .  .  "We can meet our budget obligations with oil (Brent) down to $42 ". .  .  .  .  "We will probably work with OPEC".  

These statement by Russia sounds like a wily  horse trader.  Russia definitely fishing for a deal.  

So don't count out a deal over the weekend.  Russia wants a deal before they make a public statement about support.  OPEC has no choice.  

The next question  : Is OPEC+  DEAD ?  or Is OPEC (without the +) DEAD or rendered ineffective.

Re U.S. shale : The shale producers debt/loans are reviewed and adjusted/renewed/terminated twice a year. This takes place in APRIL and OCTOBER.

Next month, April just might be the day (month) of reckoning.  Yes, this downturn is related to a once in a lifetime event. Yes, oil price will eventually bounce back.  By how much and when not sure.

There is estimated $200 Billion high yield debt that could be decimated.  What effect will that have on the U.S. economy ?

I think the banks and bond holders will stop this never ending cycle of life support for small and medium producers that recklessly destroyed their balance sheets years ago when the margins were fat.

Probably not going all come down in April. But will start in April.  The required processes will begin and the Buyers will get their lists out.  Could play out over six months to a year or more. 

Chevron, Conoco, Hess, Pioneer, Exxon get your checkbooks out

Edited by BLA
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Can't afford to buy much when your stock is down 40%.

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(edited)

14 minutes ago, wrs said:

Can't afford to buy much when your stock is down 40%.

All those listed have the capability to finance and/or issue shares.  Even Exxon. There are many more.  They all mentioned aquisitions and bolt-ons in recent conference calls.  Even Exxon.

Fun fact:. Conoco hedged 45% of their production in the high $50's this year.

Doesn't Exxon work your land ?

Edited by BLA
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1 minute ago, BLA said:

All those listed have the capability to finance and/or issues shares.  Even Exxon.  They all mentioned aquisitions and bolt-ons in recent conference calls.  Even Exxon.

Fun fact:. Conoco hedged 45% of their production in the high $50's. 

Still, they may need their borrowing for other things like dividends.  Guess we will see how it shakes out.  Looks bad for everyone and particularly for sovereigns who can't make their payrolls.

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(edited)

13 minutes ago, wrs said:

Still, they may need their borrowing for other things like dividends.  Guess we will see how it shakes out.  Looks bad for everyone and particularly for sovereigns who can't make their payrolls.

Gonna have to dip into their Sovereign Wealth Funds.  The people will be pissed if yearly stipend reduced.

Hope weather clears this mess up.

Prices will come back.  When ?

Edited by BLA
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6 minutes ago, BLA said:

Gonna have to dip into their Sovereign Wealth Funds.  The people will be pissed if yearly stipend reduced.

Hope weather clears this mess up.

Prices will come back.  When ?

Well if they do that, it means liquidating stocks in a bad market, just makes things worse.  The people need to be told their dole is being cut and I expect that will happen sooner than later.  I would think now that the hope of cuts is off the table, the fighting will resume until one or more countries is out of the oil business.

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(edited)

4 hours ago, wrs said:

Well if they do that, it means liquidating stocks in a bad market, just makes things worse.  The people need to be told their dole is being cut and I expect that will happen sooner than later.  I would think now that the hope of cuts is off the table, the fighting will resume until one or more countries is out of the oil business.

The last time MBS cut the stipends there was an attempted coup, April '18. Those were his cousins.  He took a bullet.  It obviously failed. 

I would bet 50% chance of cut agreement with Russia/OPEC by begining of next week.  Russia won't comply but that never mattered before. 

Also most Saudis that are on a stipend bought ARAMCO IPO stock.  The ARMCO stock comes off "lock-up" the begining of June.  

A nightmare.

Edited by BLA
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23 minutes ago, BLA said:

The last time MBS cut stipend there was an attempted coup April '18. Those were his cousins.  He took a bullet.  It obviously failed. 

I would bet 50% chance of cut agreement with Russia/OPEC by begining of next week.  Russia won't comply but that never mattered before. 

What would be the quid for the quo that OPEC needs to give to Russia?  Something on Syria?  I am not sure what OPEC could give them other than less of a cut.

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(edited)

3 hours ago, wrs said:

What would be the quid for the quo that OPEC needs to give to Russia?  Something on Syria?  I am not sure what OPEC could give them other than less of a cut.

I don't know. Last December they allowed Russia to eliminate condensate as oil production.  Instantly made Russia compliant without cutting any production. Russia still includes condensate when they report oil production, it just doesn't count as production regard their quota.

Coul be political, could be buy arms from Russia instead of U.S. , could be look other way and not enforce the compliance , whatever.

I think an agreement happens.  I have no clue how effective it will be.  It's one thing if the market is oversupplied 1 million barrels .  But with demand dropping 4 or 6 million bbls is uncontrolable.

Keep in mind Saudis are desperate .  Russia covers fiscal budget at $42 Brent.  Saudi Arabia needs at least $84.

Could destabilize KSA or even whole Middle East.  Not that it's very stable now. 

ARAMCO stock comes off lockup beginning of June.  Ouch.

 

Edited by BLA
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5 minutes ago, BLA said:

I don't know. Last December they allowed Russia to eliminate condensate as oil production.  Instantly made Russia compliant without cutting any production.

Coul be political, could be buy arms from Russia instead of U.S. , could be look other way and not enforce the compliance , whatever.

I think an agreement happens.  I have no clue how effective it will be.  It's one thing if the market is oversupplied 1 million barrels .  But 4 or 6 million is uncontrollable.

Keep in mind Saudis are desperate .  Russia covers budget at $42 Brent.  Saudi Arabia needs at least $84.

 

Yes, I think the Saudis are desperate but I think Russia only knows theoretically how they will do at $42/bbl.  They haven't yet had to cut production but if demand continues to remain weak in China, they will have to.  So not only are we talking about Russia having to cut anyway, they don't even get to use the necessary cut as a market tool against the shorts.  They are price takers not makers and so really I think any victory for them will be pyrrhic.  As to how things shake out in West Texas, I bet production is already on the way down out there.

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(edited)

On 3/6/2020 at 1:43 PM, wrs said:

Yes, I think the Saudis are desperate but I think Russia only knows theoretically how they will do at $42/bbl.  They haven't yet had to cut production but if demand continues to remain weak in China, they will have to.  So not only are we talking about Russia having to cut anyway, they don't even get to use the necessary cut as a market tool against the shorts.  They are price takers not makers and so really I think any victory for them will be pyrrhic.  As to how things shake out in West Texas, I bet production is already on the way down out there.

I agree. 

Re Saudis/Russians. My guess, it's a foolish game of chicken. 

Edited by BLA
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Russia is finally gripping hold of what its wanted with their sweetheart Saudi deal all along. Control. Putin has mbs on his knees begging right now. For russia it has always been a patient game of political strategy. Haven't you noticed the Russians have been steering this boat for a while. 

You Know the saying, patient money always wins. 

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Well it's also a shot at shale.  I am sure that this is going to hurt the US economy.  Oil isn't an insignificant part of the economy although the stocks have become insignificant parts of the indeces.  

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If OPEC want higher prices it looks like they'll have to take the hit themselves. I remember some time back reading it is apparently very hard for Russia to reduce production during winter due to the extreme temperatures and other technical issues although who knows how true if at all that is.

I doubt anyone in the Russian government or oil companies is going to lose any sleep over OPEC or US shale companies being under pressure, they will probably see it as having some leverage.

 

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(edited)

11 minutes ago, El Nikko said:

If OPEC want higher prices it looks like they'll have to take the hit themselves. I remember some time back reading it is apparently very hard for Russia to reduce production during winter due to the extreme temperatures and other technical issues although who knows how true if at all that is.

I doubt anyone in the Russian government or oil companies is going to lose any sleep over OPEC or US shale companies being under pressure, they will probably see it as having some leverage.

 

Exactly. They knew what they were entering into the very first day and had a gameplan and stuck to it. I noticed immediately. Especially when the inexperienced MBS showed up and took over. The only thing mbs needs is an ego stroke, fateful for any business management or leader. Putin/Novak stroke Saudis for the wins, however we all know those who gloat the glory, suffer the wrath of loss. All the while weakening their host. Eventually the gains become smaller and the losses deepen. 

Mbs has been playing the short game all along. Putin the long. Its incredible the lack of experience and diligence being shown from the golden boy. 

Edited by J.mo
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(edited)

53 minutes ago, J.mo said:

Exactly. They knew what they were entering into the very first day and had a gameplan and stuck to it. I noticed immediately. Especially when the inexperienced MBS showed up and took over. The only thing mbs needs is an ego stroke, fateful for any business management or leader. Putin/Novak stroke Saudis for the wins, however we all know those who gloat the glory, suffer the wrath of loss. All the while weakening their host. Eventually the gains become smaller and the losses deepen. 

Mbs has been playing the short game all along. Putin the long. Its incredible the lack of experience and diligence being shown from the golden boy. 

I agree MBS choice was the wrong one.

Edited by BLA
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It is best explained by Chis Weafer from one of the best analytical centers on Russia's policy - Macro Advisory

Quote

 

Russia’s oil exports to China were almost unaffected last month amid the coronavirus outbreak as the East Asian country has been benefiting from lower oil prices and building its strategic oil reserves, Chris Weafer, founder of Macro-Advisory in Moscow, told New Europe on 4 March.

“You would expect the effects might come later because a lot of the oil going to the East Siberia-Pacific Oil Pipeline, the ESPO pipeline, goes anyway into storage in China, fulfilling the long-term contracts. As the storage capacity in China perhaps grows or reaches capacity, then we are likely to see a slowdown in deliveries, delayed deliveries. For now, what I have been hearing is that China is just taking the oil into storage,” Weafer said, adding the China has plenty of storage and the Chinese have been taking advantage of the lower oil price and building up their long-term strategic oil reserves. “So, in that sense they do have the capacity to take extra oil and to build up their long-term storage whereas with gas, they don’t have the means to store the LNG (liquified natural gas) and therefore they are cancelling contracts and turning LNG tankers away or making them wait,” Weafer said.

The Macro-Advisory expert noted that the price of gas has come crashing down because of the coronavirus but also because gas producers were already suffering due to the climate in Europe in particular but in North America as well which saw greatly reduced demand for gas and rising supply in terms of LNG this winter. “Global prices were already weak and now they are hit hard by the virus effect,” he said.

As the coronavirus outbreak and lower demand has led to lower oil prices, the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC members led by Russia, sometimes referred to as OPEC+, were expected to meet on 5-6 March to discuss further production cuts.

Russia has sent mixed signals to OPEC on the possibility of further oil production cuts. Russian President Vladimir Putin said on 1 March that Russia can cope with the recent decline in oil prices but said Russia will cooperate with OPEC+ to balance the oil market. “I want to stress that for the Russian budget, for our economy, the current oil prices level is acceptable,” Reuters quoted Putin as telling a meeting with Russian energy officials and producers.

Weafer noted that Russia can withstand lower oil prices more than oil producers in the Gulf. “This time around, Russia is in a completely dions,” Weafer said. “If Russia did not have to deal with western sanctions and did not take the actions it was forced because of sanctifferent situation than it was in 2008-09 and 2014 and the difference now is the ruble is completely flexible and the ruble is allowed to free float and that acts as a counterbalance or compensating factor that we did not have before. So, at the current exchange rate the Russian budget should balance at approximately 47 dollars,” he told New Europe. “In many ways, I don’t want to be naïve about it but Russia is in stronger financial position today to withstand this period lower price is a direct result of having to deal with western sanctions it would be in a much more difficult position today,” he added.

Nevertheless, the Moscow based expert stressed that the Kremlin would certainly want to cooperate with the Saudis. “The relationship between obviously Russia and Saudi Arabia, the gulf Arab countries, has become very important in recent years so I think at a political level they will certainly want to cooperate and they would like to be seen to do it. So, I would imagine that Russia certainly will be looking to work with OPEC and to participate in the deal but there is enormous reluctance amongst the oil companies, particularly, of course, Rosneft,” he said.He explained that the attitude of th
e Russian oil producers is that the OPEC+ deals which support oil price are only helping to sustain the American oil industry because they don’t participate with any cuts and high price suits them and allows them to increase their global market share. “There is this resentment that what Russia and OPEC are doing has really benefited the US market producers who are competing and taking market share away,” Weafer said, adding: “My guess is that will get statements of cooperation but I would imagine Russia will cut relatively little in terms of production.”

 

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(edited)

5 hours ago, wrs said:

Yes, I think the Saudis are desperate but I think Russia only knows theoretically how they will do at $42/bbl.  They haven't yet had to cut production but if demand continues to remain weak in China, they will have to.  So not only are we talking about Russia having to cut anyway, they don't even get to use the necessary cut as a market tool against the shorts.  They are price takers not makers and so really I think any victory for them will be pyrrhic.  As to how things shake out in West Texas, I bet production is already on the way down out there.

Russia endured with prices at $28-$33/barrel in Oct 2015-Feb 2016 AND in Oct 2015 arrived in Syria to begin operations and turn the tide of war. So they have seen lower prices than the current. Devalued ruble is an important factor which you folks are ignoring. At 63-68/$ their oil and gas companies can still profit. Whereas US shale, Canadian oil sands, LNG might not. Saudis stuck in Yemen and with big budget deficits... but still lots of cash stored. Moscow has $570 bn forex reserve now. Perhaps they expect shale bankruptcies to clear the field by Fall 2020. 

Edited by Frank Schuler
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(edited)

Russia endured with prices at $28-$33/barrel in Oct 2015-Feb 2016 AND in Oct 2015 arrived in Syria to begin operations and turn the tide of war. So they have seen lower prices than the current. Devalued ruble is an important factor which you folks are ignoring. At 63-68/$ their oil and gas companies can still profit. Whereas US shale, Canadian oil sands, LNG might not. Saudis stuck in Yemen and with big budget deficits... but still lots of cash stored. Moscow has $570 forex reserve now. Perhaps they expect shale bankruptcies to clear the field by Fall 2020.

I'm afraid I posted twice. sorry. 

Edited by Frank Schuler
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The Russian contributions to OPEC+ looked illusory at best:

https://www.bloomberg.com/opinion/articles/2020-02-23/opec-emperor-saudi-arabia-has-fallen-for-russia-s-tricks

that being said, it did prevent Russia from going hog wild with new projects. Besides the psychology of the OPEC/NonOPEC coalition, OPEC's recent success controlling the markets recent seems to be 1) legitimate cutback from Saudi Arabia 2) all the problems w/ Venezuela, Iran, etc.

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(edited)

10 hours ago, BLA said:

Could be political, could be buy arms from Russia instead of U.S. , could be look other way and not enforce the compliance , whatever.

I think an agreement happens.  I have no clue how effective it will be.  It's one thing if the market is oversupplied 1 million barrels .  But with demand dropping 4 or 6 million bbls is uncontrolable.

Keep in mind Saudis are desperate .  Russia covers fiscal budget at $42 Brent.  Saudi Arabia needs at least $84.

Could destabilize KSA or even whole Middle East.  Not that it's very stable now. 

ARAMCO stock comes off lockup beginning of June.  Ouch.

 

Saudi King Salman arrests members of Royal Family for treason.  

Fight for the oil revenue and thus the Kingdom, as the oil price crashes.

https://www.newsweek.com/saudi-crown-prince-detains-kings-brother-other-royals-tightening-grip-power-oil-revenues-slide-1491035

Edited by BLA
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6 hours ago, Tomasz said:

It is best explained by Chis Weafer from one of the best analytical centers on Russia's policy - Macro Advisory

 

Russia's Ruble is essentially an oil unit, its' exchange rate perfectly matching the oil price. Their costs are internal as is their spending, so they care little about the exchange rates, their people - who do care what imports cost them, obviously matter less to Putin, who has never defended the currency.  

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