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

[Ward Smith + 6,615]

2 hours ago, Marcin2 said:

I was never researching it in detail , I mean what mechanism is used by US to coerce Canada, but Canada cannot export its crude oil. the same with Mexico.

Uncle Sam just do not allow.

You're delusional if you think the US government is doing this. At great political capital Trump immediately pushed for the Keystone pipeline to be approved. That was for oil to come INTO the US. Obama was against the pipeline because he accepted a big bribe from Buffet, who had purchased a railroad on the cheap that was used to carry that same oil instead. But Obama doesn't vote in Canadian elections nor demonstrate against pipelines, that's all on CANADIANS. 

@wrsabove is exactly correct, you should research HIM and maybe learn something. I personally know Canadian producers who have been hammered by their own countrymen, not getting access either East or West for export pipelines, nor South for expansion. Who is the guilty party? Why just look at @Enthalpichere. A true believer, who made his money working for the government fighting against the oil companies paying his salary, who no doubt votes along with all his liberal cronies to ensure that no pipelines ever get built. One day, I can only pray his income is effectively slashed (most likely through massive devaluation) and he shares a bit in the punishment he's been meting out. But he's not the brightest bulb so it's unlikely he'll be able to connect the dot. Only one dot but clearly beyond him. 

[El Nikko + 2,145]

?????

"I want to say that the door isn’t closed,” Novak told the state-run Rossiya 24 TV channel

https://www.rigzone.com/news/wire/russia_keeps_door_open_for_opec-10-mar-2020-161339-article/

[kommersant + 13]

From biggest russian bussines newspaper Kommersant

Quote

 

The week that has begun today will be an effective test of strength for the economic structure of the Russian Federation. The collapse in global financial markets on March 9 was a quarter Russian. A sharp deterioration in sentiment due to the spread of coronavirus in the EU overlapped with the intention of the Russian Federation and Saudi Arabia announced after the collapse of the OPEC + agreement to aggressively compete in oil export markets. All this already yesterday reduced the capitalization of Russian companies in London and New York by 7–22%, oil prices by 30%, and the ruble at foreign sites to 74 rubles / $. The real scenario for the Russian Federation will become clearer today at the opening of domestic markets and in the coming days. The budget, the Central Bank, and companies have every opportunity to almost not feel a sharp deterioration in the terms of foreign trade - but no one was preparing the system for the likely collapse of moods and the expected anti-crisis chaos.

March 9 - in Russia, unlike most of the world, a day off - for the Russian government was a torn weekend. An unscheduled meeting was held in the White House - Prime Minister Mikhail Mishustin gathered at it an economic leadership, including profile vice-prime ministers and ministers, the head of the Central Bank and representatives of the AP. They discussed a new economic reality: a collapse in oil prices on world markets by 30% and its stabilization at $ 34 per barrel, devaluation of the ruble against the dollar in over-the-counter markets to 74 rubles / $, a collapse in the capitalization of the largest Russian issuers in London and New York, from Sberbank and Yandex to Rosneft and Norilsk Nickel, by 7-22%.

In what happened with Russian issuers, it is almost impossible to separate specifically “Russian” factors from world panic in the markets due to the rapid spread of coronavirus in the EU - Russian oil and metallurgical stocks, for example, fell almost the same way as BP, Shell, Glencore, Rio Tinto Technological and banking are stronger.

Sales of assets in the world began on Friday (major world indices lost 3-5%), the actual collapse of the OPEC + agreement became known at the same time. The trigger for extremely agitated players was information about the intention of Saudi Arabia and Russia to open a price war in export oil markets - and the collapse of Brent and WTI prices to 2008 levels.

Although on the eve of March 5, the government updated the leadership of the commission for economic development (in 2009 it was the center for “manual” decisions of the anti-crisis plan) and approved the composition of the new operational (meeting every two weeks) White House commission to increase the sustainability of economic development (both commissions are headed by First Deputy Prime Minister Andrei Belousov), while it is not known what is supposed to be done in the new situation.

The only decision made yesterday was set forth by the Bank of Russia: from March 10, for 30 days, the Central Bank will not buy foreign currency under the “budget rule”.

The Finance Ministry, in turn, explained: the “rule” is in effect, at the current price of oil, the budget will receive less than $ 2 billion per month, they can be taken from the NWF at any time, where a little more than $ 150 billion.

How Russian assets collapsed without Russian trading

Based on earlier calculations by the Ministry of Finance, if oil as a result of the oil price war remains at $ 35 per barrel and everything goes according to the government plan, the budget in 2020 will receive less than 800–900 billion rubles. Given that the balance of funds in the treasury now stands at 4.2 trillion rubles, the Ministry of Finance can very well afford not to enter the OFZ market for a very long time (it will obviously become today along with the currency main victim) and not amend the three-year budget at all . While it is difficult to calculate losses from margin calls and from the implementation of currency hedges, they do not look catastrophic in the experience of 2009 and 2014. In general, what is happening is comparable to the events of the end of 2014 - now the authorities, and the economy is an order of magnitude better prepared for a sharp deterioration in the terms of foreign trade (and in economic terms we are talking only about that). Even the expected inflationary surge due to the so-called transfer effect on the Central Bank’s hand, since the end of 2019 has been “short of” 1-1.5 percentage points to the inflation target: at the March meeting of the Board of Directors of the Bank of Russia, for now, it has every reason or to keep the key bid, or limit itself to its symbolic increase of 0.25 pp

In free fall

Ruble collapses: how it was and what the authorities did

Read more

However, all the considerations that the White House may not worry at all about the coming months and react to what is happening, using the entire impressive set of protective measures of the “Russia Fortress”, are divided into several purely opportunistic moments. In the first place, today it will become clear by the scale of the inevitable exchange panic how much the Russian economy’s “media” is compared to 2014 and the rest of the world. The depth of the collapse of Western markets on news about coronavirus is largely associated with the overreaction and over-efficiency of financial markets in the world, driven by almost entirely purely news triggers. It is especially important how “media-dependent” the public sector is managed and panic-prone in the Russian Federation - this will be revealed soon, but the result is unpredictable and critical for any forecasts for a period longer than three days.

Russian authorities are ready to take into account the epidemic factor in the execution of state contracts

The second circumstance is the “budget rule” and the associated design of the “National Welfare Fund — national projects — development institutes — state-owned banks — state-owned companies” focused exclusively on protection against external pressure and against exogenous crises. The main problem of the Russian economy in 2018–2019 was the actual refusal by both state-owned companies and private structures to make new large investments due to uncertainty. In 2020, it was multiplied by the coronavirus many times, while the Central Bank and the White House have not yet demonstrated the funds from the endogenous crisis associated with the collapse of expectations (and not external demand). The third point: although there is no reason to even speculate about this, the idea of anti-crisis measures of the new government may differ markedly from the practice of 2014-2015. And in general, the chaos of anti-crisis innovative rule-making is one of the main threats:

 

Quote

10th of March. FINMARKET.RU - The end of the OPEC + deal and the ensuing collapse in oil prices made the negative options for the medium-term forecasts of the Central Bank and the Ministry of Economic Development, which usually pay little attention due to their low probability, more relevant.The Bank of Russia and the Economic Ministry traditionally prepare three options for a socio-economic forecast: for the Central Bank it is with high oil prices, basic and risky (with low oil prices), for the Ministry of Economic Development it is the target one (corresponds to the figures prescribed in the May decree of the president), basic (is the basis for budget preparation) and conservative (at lower oil prices).Usually, everyone is guided and describes the basic scenarios of both the Central Bank and the Ministry of Economic Development, they are considered the most likely options.Now it is difficult to predict what the oil price will be as a result of the termination of the OPEC + deal, but a fall as early as Monday to almost $ 30 followed by a rebound to $ 35 now forces us to more carefully examine the Central Bank’s risk scenario (calculated at the end of October) at an average annual oil price Urals brand at $ 25 per barrel in 2020 and the conservative scenario of the Ministry of Economic Development (calculated at the end of September) at a price of $ 42.5 per barrel in 2020.The current oil price is approximately in the middle between these scenarios of the Central Bank and the Ministry of Economic Development. At the same time, if in the variant of the Ministry of Economic Development and Trade with the oil price of $ 42.5, the Russian economy is expected to grow by 1.1% in 2020, then in the Central Bank scenario at $ 25 per barrel in 2020 a decline is expected in the range of 1.5-2.0 %The basic scenario of the Central Bank for 2020 is calculated at an average annual oil price of $ 55 per barrel and assumes the growth of the Russian economy in the range of 1.5-2.0%, and inflation in the range of 3.5-4.0%.The basic forecast of the Ministry of Economic Development, which was clarified at the beginning of February and even then raised questions, since it did not sufficiently take into account the influence of coronavirus on the world economy and commodity markets, proceeded from the oil price of $ 57.7 per barrel, assumed an increase in Russia's GDP by 1.9% , inflation of 3.0% and an average annual dollar exchange rate of 63.9 rubles.Risk scenarioThe risk scenario described at the end of October by the Central Bank significantly coincides with what happened on Monday in the oil markets, the main difference was only the reason for this collapse - the Central Bank laid the height of trade wars in this scenario, not knowing then either about coronavirus or sharp termination of the OPEC + agreement.“The risk scenario assumes a significant deterioration in external conditions over the entire forecast horizon starting from the first quarter of 2020. The basis of this development is a much more significant than in the baseline scenario, a slowdown in the global economy, which is in the form of a pronounced cyclical recession with a delayed recovery, partly triggered by trade disputes. Slowing global economic growth will be accompanied by a significant increase in volatility in global financial markets, a decrease in global klonnosti risk, as well as sharp and deep drop in world oil prices. So, In the risk scenario, it is assumed that world oil prices will drop to $ 25 per barrel in 2020 (in the most acute phase of the crisis, to $ 20 per barrel) due to a significant reduction in global energy demand and a significant worsening of expectations regarding global economic growth prospects. At the same time, in 2021–2022, further consolidation of world oil prices at a low level (about $ 30-35 per barrel) presupposes the action of supply side factors, in particular, deterioration in coordination of oil production within OPEC + with a significant increase in production outside OPEC, " - the Central Bank described its risk scenario.The forecast of the Central Bank of inflation in the risk scenario suggests a short-term, but significant increase in annual inflation to 6.5-8.0% in 2020. "The main factors in this will be the weakening of the ruble and the growth of exchange and inflation expectations. Moreover, given the decrease in the sensitivity of domestic prices to changes in external factors, including in the context of consistent implementation of the inflation targeting policy and import substitution processes, the price growth rate in 2020 will be significantly lower than in the episode of the crisis of 2014-2015. Given the timely response of monetary policy, annual inflation will begin to decline at the beginning of 2021 and will approach 4% in mid-2021, " CBR been encouraged."The expected deterioration of external conditions in the risk scenario from the beginning of 2020 (including a noticeable decrease in external demand) will cause an economic recession in 2020, as a result of which the GDP growth rate in 2020 will be from minus 1.5% down to minus 2.0%. At the same time, the dynamics of consumption, investment and export will make a contribution to the decline in production. In 2021–2022, as the economy adapts to changing external conditions, the economy will go over to recovery growth and in 2021 will grow by 1.0– 2.0%, and in 2022 - by 3.5-4.5%, "the Central Bank described the risk scenario from the point of view of the dynamics of the economy."At the same time, export dynamics will remain restrained throughout the forecast horizon against the background of a slow recovery in the global economy. Budget policy will support the dynamics of economic activity on the forecast horizon. So, in 2020-2022, due to the expected ruble weakening in the risk scenario, there will be an increase in basic oil and gas federal budget revenues, which, according to the mechanism of the budget rule, will lead to an increase in federal budget expenditures (compared to 2019), financed by the NWF in as global oil prices fall below a cut-off price of $ 40 per barrel in real terms."Monetary policy. In the risk scenario, the key rate path will be higher than anticipated in the base scenario, mainly in the short term. The timely response of the monetary policy and the corresponding adjustment of monetary conditions will limit the duration and scale of deviation of inflation up from 4%. In case of risks to financial stability within the framework of the risk scenario, the Bank of Russia has at its disposal a set of all tools to maintain financial stability The use of which will allow monetary policy to focus on maintaining price stability ", - expressed confidence in the Central Bank in maintaining finstabilnosti even at such low oil prices.Conservative scenarioThe conservative scenario developed by the Ministry of Economic Development for 2020 proceeded from higher oil prices than the risky option of the Central Bank - $ 42.5 against $ 25 per barrel."The conservative scenario was developed by the Ministry of Economic Development of the Russian Federation on the basis of the assumption that the risk will be more significant than expected in the base scenario, the global economy will slow down in the context of further escalation of trade conflicts between the largest economies (to about 2.5% in 2020 and to a level slightly above 2 % in 2021). A slowdown in global economic growth under the conservative scenario will lead to a decrease in demand for energy and other commodities. In this regard, under the conservative scenario is expected more significant compared with the base deterioration in world commodity markets: for example, oil prices will fall to $ 42.5 per barrel in 2020 and continue to grow at a rate close to dollar inflation (up to $ 45.9 per barrel by 2024) ","The current construction of macroeconomic policy will limit the reaction of internal parameters to fluctuations in oil prices," the ministry emphasized, commenting on this scenario.The inflation in a conservative scenario was expected by the Ministry of Economic Development even below the target - at 3.2% in 2020, with a subsequent return to 4.0% in 2021-2024.“At the same time, a weak external demand for Russian export goods will have a negative impact on economic growth in a conservative scenario. In a conservative scenario, the influence of external factors will slow down GDP growth to 1.1% in 2020. In the future, as structural measures, growth is expected to accelerate, but it will be more moderate than in the baseline scenario - up to 2.5% by 2024. Given the more significant slowdown in the global economy, the dynamics of the Russian economy projected under the conservative scenario about GDP will make it possible to achieve a growth rate above the world average by 2024, "the economic forecast described in the conservative scenario at the Ministry of Economic Development.The ministry expected the average annual dollar rate in this version in 2020 at 68.7 rubles and a gradual increase to 70.5 rubles in 2024.

 

[0R0 + 6,251]

1 hour ago, kommersant said:

Slowing global economic growth will be accompanied by a significant increase in volatility in global financial markets, a decrease in global klonnosti risk, as well as sharp and deep drop in world oil prices. So, In the risk scenario, it is assumed that world oil prices will drop to $ 25 per barrel in 2020 (in the most acute phase of the crisis, to $ 20 per barrel) due to a significant reduction in global energy demand and a significant worsening of expectations regarding global economic growth prospects. At the same time, in 2021–2022, further consolidation of world oil prices at a low level (about $ 30-35 per barrel) presupposes the action of supply side factors, in particular, deterioration in coordination of oil production within OPEC + with a significant increase in production outside OPEC, " - the Central Bank described its risk scenario.The forecast of the Central Bank of inflation in the risk scenario suggests a short-term, but significant increase in annual inflation to 6.5-8.0% in 2020. "The main factors in this will be the weakening of the ruble and the growth of exchange and inflation expectations. Moreover, given the decrease in the sensitivity of domestic prices to changes in external factors, including in the context of consistent implementation of the inflation targeting policy and import substitution processes, the price growth rate in 2020 will be significantly lower than in the episode of the crisis of 2014-2015. Given the timely response of monetary policy, annual inflation will begin to decline at the beginning of 2021 and will approach 4% in mid-2021,

The "risk" scenario is already here. The Inflation prediction is 8% at the more likely top end of estimates, and the monetary response is supposed to be tightened rates to curb inflation while the Russian government revenue is hurt. Their average price target of $30-35 is not realistic under the Saudi "underbid Russia" and market flooding policy. That means that Russia will either not make sales and clog up the seas with loaded tankers, or take opportunistic sales at a big discount to Brent (say about 10-15%), not the common $2 discount. So the realized Federation revenues will be far below those expected at $30-35 but equivalent to $25-30 and reduced volumes by at least 1mob/d and likely 2mob/d and a temporary 3mob/d for a couple of months. Thus Russian Federation budget would have to be trimmed by 15% while interest rates rise, energy investment falls, and inflation is on the bottom end of hyperinflation ranges. That is no recipe for keeping power in an upcoming election. It looks like an inflationary depression in the 1970s style - stagflation.

So either Russia returns to the table to discuss a 15% cut in production or gets its oil revenues dinged by 40% or worse. I don't believe Putin will get it right in either direction. His economic analysis was incomplete and leads to policies that can easily get him and his party out of power permanently.

I would bet that he chooses to let go of economic stability and isolation principles in order to fix the Public's hit from inflation and decline in investment. Off the bat, an 8% of GDP deficit spending is in the center of the forward projections. That will not do well for the NWF. It will drain far more rapidly. 

[Andrew N. + 3]

18 марта 2020 г. , Вена

РОССИЯ + JTC (Совместный технический комитет)

Российские представители примут участие в мартовском заседании технического комитета ОПЕК +, сообщил журналистам министр энергетики России Александр Новак.

- «Да, наши представители будут [на официальном заседании JTC]. Еще раз повторяю: в рамках Хартии [сотрудничество нефтедобывающих стран] сохраняется формат отношений, мы продолжаем следить за ситуацией с коллегами »(Новак).

https://tass.ru/ekonomika/7944743

Edited March 11, 2020 by Andrew N.

[Tom Kirkman + 8,860]

On 3/7/2020 at 4:41 PM, El Nikko said:

I can totally believe the first point

I don't think I agree with the second point though, I think Putin has Erdogan under his thumb right now. Putin has done a good job working with the Turks on the Syria situation, he's not an idiot though and probably couldn't care less about Assad regardless of the rhetoric. I think Syria is important to Russia and Putin because it's the only Russian naval base they have *in the med*, it's a matter of Russian pride to not allow another one of their client states to get destroyed (Libya) and also because the stability of the ME is probably more important to Russia that it is to the US because of how close it is to Russian borders especially the federation states. If Syria fails then the Russians are going to look really really bad and that is probably not a good thing. I would add that Russia walking away from cuts and damaging US shale might (and this is really total speculation) be related to Syria and negotiations going on behind the scenes.

My feeling is Assad and Syria will stay, there will be a Kurdish autonomous region with the US support (Turks hate it!) but still part of Syria and Turkey probably wants out right about now. There is a ceasefire which means more ground is lost by the Idlib 'rebels'.

Israel wants Iran out of Syrian however and they're not going to stay quiet about it..which means it has to happen one way or another

 

Reality check of Turkey's "acheivements" from South Front (hi-res map in the link)

Turkey's Operation Spring Shield: Declarations vs Reality (Map Update)

Turkish officials, state media and affiliated propaganda organizations appear to be trying to paint Ankara’s Operation Spring Shield in the Syrian region of Greater Idlib as a ‘successful move’ that achieved all ‘declared goals’.

So, this is a short reminder what goals Turkey declared and what it achieved employing its Armed Forces in an open military aggression against Syria.

 

MORE ON THE TOPIC:

• Military Situation In Syria On March 10, 2020 (Map Update)

[Tomasz + 1,608]

Quote

Exclusive: Russia to OPEC: deeper oil cuts won't work

MOSCOW (Reuters) - This week’s oil price rout had become inevitable and cutting output has ceased to make sense because it is unclear how deep the impact of the coronavirus on demand will be, Russia’s deputy energy minister said in an interview with Reuters on Wednesday.

Last week, Saudi Arabia failed to secure Moscow’s support for deeper output cuts at a meeting of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.

Following the disagreement, Saudi Arabia has threatened to flood the market with oil. Oil prices LCOc1 dropped by as much as a third on Monday and fell again on Wednesday to around $36 a barrel.

OPEC had proposed to deepen cuts by 1.5 million barrels per day (bpd) and Russia was asked to cut an extra 300,000 bpd.

Pavel Sorokin, Russia’s deputy energy minister, described that task, which would have doubled Moscow’s commitment to 600,000 bpd, as technically challenging.

He said there was no point in cutting until after everyone understood how sharply demand could fall.

“We cannot fight a falling demand situation when there is no clarity about where the bottom (of demand) is,” Sorokin said. He attends all joint meetings with OPEC with his boss Alexander Novak and gave Reuters his first interview since last week’s meeting.

“It is very easy to get caught in a circle when, by cutting once, you get into an even... worse situation in say two weeks: oil prices would shortly bounce back before falling again as demand continued to fall.”

Russia had proposed extending existing OPEC+ combined cuts of 1.7 million bpd for at least one more quarter to try to assess the real impact on demand from the coronavirus, but OPEC refused. From April 1, all OPEC+ producers can now pump oil freely.

“We see the (current) market situation as predictable yet unpleasant... Market and market forces will regulate it fairly quickly,” Sorokin said, adding he expected to see the first signs of lower oil production activity at costly projects worldwide in 4-6 months.

“NOT AT WAR”

Sorokin said Russia was open to talking to OPEC again if the situation arises and was not engaging in a price war.

“All communication channels are open, but I cannot predict when we will meet again - this largely depends on our partners,” he said.

Russia’s oil producers, who price their crude in dollars on world markets, would be sheltered by the dollar-rouble exchange rate.

“We are not in a price war with anyone... We are competitive. We watch the market and understand that such a situation will help the market to recover. High-cost projects will disappear,” Sorokin said.

Russia can quickly add 200,000-300,000 bpd to its production, raising it further to 500,000 bpd in the next couple of months, which would take Moscow’s oil and gas condensate output to around 11.80 million barrels of oil equivalent per day (boepd).

That would be a post-Soviet high but still below the more than 12 million bpd the Saudi energy ministry has said it will produce in April.

Last week’s split between Russia and OPEC ended nearly three years of coordination, during which time the market accepted the idea producers would prevent a market collapse.

Sorokin said that meant companies began to invest in high-cost oil again, reducing the impact of more output cuts by producer countries.

A fresh cut last week would have boosted prices and in turn brought on new projects that would flood the market in three-to-four years’ time, he said.

“Sooner or later, we would have faced an oil price fall to $40 and lower, with the exit (from the deal) in six months or a year,” Sorokin said.T

The deputy minister sees oil market equilibrium at $45-55 per barrel, which is comfortable for producers and low enough for the global economy to recover from the coronavirus impact.

Provided there are no further shocks, Sorokin said he saw prices rising to $40-45 per barrel in the second half of this year and to $45-50 - in 2021.

 

 

Edited March 11, 2020 by Tomasz

[surrept33 + 609]

The Abu Dhabi National Oil Company (ADNOC), currently pumping 3 million barrels/day, says they will increase to 4 million barrels/day in April, plans to speed up plans for 5 million barrels/day.

https://www.spglobal.com/platts/en/market-insights/latest-news/oil/031120-uaes-adnoc-can-supply-over-4-mil-bd-in-april-speed-up-raising-capacity-to-5-mil-bd

https://www.worldoil.com/news/2020/3/11/adnoc-joins-price-war-pledging-to-boost-supply-to-4-mmbpd

Edited March 11, 2020 by surrept33

[footeab@yahoo.com + 2,192]

4 hours ago, surrept33 said:

The Abu Dhabi National Oil Company (ADNOC), currently pumping 3 million barrels/day, says they will increase to 4 million barrels/day in April, plans to speed up plans for 5 million barrels/day.

https://www.spglobal.com/platts/en/market-insights/latest-news/oil/031120-uaes-adnoc-can-supply-over-4-mil-bd-in-april-speed-up-raising-capacity-to-5-mil-bd

https://www.worldoil.com/news/2020/3/11/adnoc-joins-price-war-pledging-to-boost-supply-to-4-mmbpd

Time to FILL to the brim the SPR of every nation on earth...  This current idiocy will not last

[footeab@yahoo.com + 2,192]

16 hours ago, Tom Kirkman said:

 

Reality check of Turkey's "acheivements" from South Front (hi-res map in the link)

Turkey's Operation Spring Shield: Declarations vs Reality (Map Update)

Turkish officials, state media and affiliated propaganda organizations appear to be trying to paint Ankara’s Operation Spring Shield in the Syrian region of Greater Idlib as a ‘successful move’ that achieved all ‘declared goals’.

So, this is a short reminder what goals Turkey declared and what it achieved employing its Armed Forces in an open military aggression against Syria.

MORE ON THE TOPIC:

• Military Situation In Syria On March 10, 2020 (Map Update)

This is all about the good AG land and further blocking port/pipeline access to MED sea.  Has nothing to do with anything else.  Turkey sees an opportunity to increase their percentage of good land and are taking it.  Just goes to show NATO is dead as one of the core tenants of NATO has been enforcing RIGID borders to stop eternal wars over "better lands" on the other side of the fence. 

[Marcin2 + 726]

On 3/10/2020 at 9:54 PM, 0R0 said:

The "risk" scenario is already here. The Inflation prediction is 8% at the more likely top end of estimates, and the monetary response is supposed to be tightened rates to curb inflation while the Russian government revenue is hurt. Their average price target of $30-35 is not realistic under the Saudi "underbid Russia" and market flooding policy. That means that Russia will either not make sales and clog up the seas with loaded tankers, or take opportunistic sales at a big discount to Brent (say about 10-15%), not the common $2 discount. So the realized Federation revenues will be far below those expected at $30-35 but equivalent to $25-30 and reduced volumes by at least 1mob/d and likely 2mob/d and a temporary 3mob/d for a couple of months. Thus Russian Federation budget would have to be trimmed by 15% while interest rates rise, energy investment falls, and inflation is on the bottom end of hyperinflation ranges. That is no recipe for keeping power in an upcoming election. It looks like an inflationary depression in the 1970s style - stagflation.

So either Russia returns to the table to discuss a 15% cut in production or gets its oil revenues dinged by 40% or worse. I don't believe Putin will get it right in either direction. His economic analysis was incomplete and leads to policies that can easily get him and his party out of power permanently.

I would bet that he chooses to let go of economic stability and isolation principles in order to fix the Public's hit from inflation and decline in investment. Off the bat, an 8% of GDP deficit spending is in the center of the forward projections. That will not do well for the NWF. It will drain far more rapidly. 

Reign horses of your fantasy on this one.

It was already presented here, at this thread that Russia has enough sovereign funds to live with 25 dollars crude oil for 5 years with ease.

25 dollars crude for next  6-9 months could be reality and nothing could be done about it. Please just adjust your investment portfolio.

I do not see much justification for Russia to change the course, at least till the end of Q2 2020.

Edited March 12, 2020 by Marcin2
Thpo

[surrept33 + 609]

Oil started dropping sharply after the US announced a travel ban from Europe for the next 30 days. It feels like that 30 days might be extended longer potentially assuming it spreads internally within the EU as has been happening the last few days.

https://m.investing.com/commodities/brent-oil

[Guillaume Albasini + 851]

And this ban came just hours after Lufthansa cancelled 23'000 flights.

https://www.businesstraveller.com/business-travel/2020/03/11/coronavirus-lufthansa-group-cancels-23000-flights-for-april/

[0R0 + 6,251]

1 hour ago, Marcin2 said:

Reign horses of your fantasy on this one.

It was already presented here, at this thread that Russia has enough sovereign funds to live with 25 dollars crude oil for 5 years with ease.

25 dollars crude for next  6-9 months could be reality and nothing could be done about it. Please just adjust your investment portfolio.

I do not see much justification for Russia to change the course, at least till the end of Q2 2020.

The assumption in the calculation is that they sell all their production. Saudi is attempting to interrupt as much of their sales as possible. I think they will have takers where Russia might not. At least it appears so in N. Europe. I don't know what it will look like in China where politics of the Russia-Chinese alliance may take precedence. Russia also has sales in the US. Including LNG of all things. I suppose that Saudi will underbid those as well (not the LNG, of course). I am assuming that they will succeed in hitting 20% or a bit more than that in displacing Russian sales. Which I think is conservative. That means a 40% reduction of revenue from the $42 benchmark breakeven for the governent of Russia, not the 20% that the $30 stress case is presuming. If the Saudis are more successful than that, which is likely, the Russian forex revenue would be that much smaller. 

So from $120 Bil in exports at $60/Bbl they would go to $48 Billion at $30/Bbl and 20% loss of market share. $40 Bil if Saudi is more successful at undercutting Russian deliveries. The Ruble would then have to go down to 100 to compensate for oil company costs and Russian government income to come to balance, while consumer prices would be up roughly 30%. They would have to put export controls on Russian soy wheat and potatoes or the people will not have food to eat as it would all be exported out.  

Additionally, the CB stress case ignores the results in terms of living standards. Their projected 8% price inflation is to be fought with an appropriate raising of rates to bring it back down to 4%. Meaning that in addition to higher prices, Russian consumers will face higher interest rates. That means that Putin's program of social welfare and child care and tax credits is going to have to compensate in order to prevent further erosion of living standards which the weak floating Ruble policy has caused already. Putin's asset swap trick with the CB and NWF to fund it will need to be double the $22 Bil target to compensate for the 8% inflation they project. 

So to match Putin's promised social welfare program results, they would need to run far more than the $1.7 billion they estimate for each year this lasts. The calculation and the government's stated policy are at odds.The floating currency is not magic. It is real resources being denied to the Russian people in order to make the oil and gas companies break-even. This would be a far worse outcome than this official projection is taking into account, and the budgetary constraints mean a severe stagflation for Russia with such a reduction in oil revenue and import capacity.  Widespread malnutrition will not win Putin popularity. 

https://www.statista.com/statistics/1023747/russia-annual-crude-oil-exports/

[cbrasher1 + 272]

2 hours ago, surrept33 said:

Oil started dropping sharply after the US announced a travel ban from Europe for the next 30 days. It feels like that 30 days might be extended longer potentially assuming it spreads internally within the EU as has been happening the last few days.

https://m.investing.com/commodities/brent-oil

there is no point in a ban, to little to late, the virus is already here in the states, let it run its course and see how it turns out.  i would be willing to bet it is airborne, all 50 states will have cases soon enough.

[D Coyne + 305]

On 3/9/2020 at 12:50 PM, BLA said:

Current price action will induce major capital spending decrease.  Probably cut 2 mm bbls/day of U.S. production short term.

That's more than the 1.5 mm bbls OPEC + wanted to cut. 

BLA,

I expect about a 4 Mb/d in US tight oil output by April 2022, if the EIA's Short Term Energy Outlook's oil price scenario for the March 2020 report proves correct.  It will drop by at least 2 Mb/d within the next 12 months (by March 2021).

[D Coyne + 305]

On 3/9/2020 at 3:19 PM, Gerry Maddoux said:

Well, good luck with this--I've been harping on this for two years--all they have to do is enforce Statewide Rule 32 and we wouldn't even be in this mess. 

Agree that saying it won't make it happen, but perhaps if oil producers complain to the RRC, there might be some action.

[Gerry Maddoux + 3,627]

3 hours ago, D Coyne said:

Agree that saying it won't make it happen, but perhaps if oil producers complain to the RRC, there might be some action.

Statewide Rule 32 was shredded ostensibly to help the borderline producer who couldn't afford to reserve space in an egress pipeline. Exxon moved in and violated Statewide Rule 32 proportionately--that's the reason you can see those big nighttime satellite views showing something that looks like the city of London in the Permian. 

The TRRC can't stop the large producers without stopping the fringe producers. It is the perfect Catch 22. 

And now, with the market in shambles, no one really gives a damn.