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

[0R0 + 6,251]

33 minutes ago, El Nikko said:

I don't think normal people in the West hate Russia or Putin depending on what media they read.

Most likely most people in the West do no understand is what happened after the fall of the Soviet Union and are probably unaware of the fact that Russia was promised that NATO would not move to the East...which is has done and the Ukraine coup/conflict is a good example of how pushing things too far can end in disaster. They are also probably not aware of what happened during the Yeltsin era where he pretty much sold out Russia to the highest bidder. If only they could imagine how they would feel if things were in the reverse.

I try to be pragmatic and see things from both sides.

Personally I am a cultural Russophile from the Russian enlightenment period, reading Dostoevsky and Rachmaninoff Prokofiev Stravinsky and Tchaikovsky and the gang of 5 accounting for nearly half my listening. 

I think the tragic Soviet era and the dissolution of the empire has devastated Russians. I don't have a real solution to their plight but Putin and his absurd phobias and placing himself at China's disposal is not helping things. As Russia empties of Russians, it becomes an increasingly attractive target for China's expansion so as to assure itself of food and energy resources.  

[Tomasz + 1,608]

NATO has a military budget about 15 times larger than Russia. Even counting down the United States, European NATO members have 4 times more population than Russia and a military budget several times larger.

 

Russia has no phobia but sees that despite the agreement with Gorbachev NATO is constantly approaching the borders of Russia.

https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

NATO military budget 1036

NATO without USA 387 

Russia 61,7

Even if you count Purchase parity level there is a difference.

[El Nikko + 2,145]

3 minutes ago, 0R0 said:

Personally I am a cultural Russophile from the Russian enlightenment period, reading Dostoevsky and Rachmaninoff Prokofiev Stravinsky and Tchaikovsky and the gang of 5 accounting for nearly half my listening. 

I think the tragic Soviet era and the dissolution of the empire has devastated Russians. I don't have a real solution to their plight but Putin and his absurd phobias and placing himself at China's disposal is not helping things. As Russia empties of Russians, it becomes an increasingly attractive target for China's expansion so as to assure itself of food and energy resources.  

I really do enjoy what you write, regarding your comments about demographics it really got me wondering about where you were from because in the UK right now if you dare raise any question about our demographic change (rapidly happening) you will be totally ostracised and potential put in prison lol

 

[0R0 + 6,251]

5 minutes ago, El Nikko said:

I don't think many people on here will get this mate...maybe if people did a bit of research they would see how the constant expansion of an oranisation which was designed to hold back the Communist Soviet Union is still funded just as much (if not more) to combat the threat of Russia which has a much smaller GDP and military spending than NATO has. I think the real problem is while the west has huge military spending it's military isn't in a good shape and therefore feels vulnerable...so maybe the cause of the sabre rattling

Peter Zeihan keeps pounding the table for the Russians to go into the Baltics Poland down to Romania to capture the highlands and reduce the length of its border while it still has enough of a population to form a substantial army. He believes that a new Ribbentrop Molotov redivision of Europe between Russia and Germany are in the works and NATO forces moving to Poland, the Baltics and Romania are just initial steps to prevent that from happening.  

His former boss, Stratfor head George Friedman points out that the West must preserve the Slavic nations to keep Russian paranoia from enslaving them again. He points to German and other Nato's other member's passive response to Russian expansion and inability to make decisions as to strategic positioning as making NATO into a shaky institution with more support in Poland than Berlin.

[El Nikko + 2,145]

1 minute ago, 0R0 said:

Peter Zeihan keeps pounding the table for the Russians to go into the Baltics Poland down to Romania to capture the highlands and reduce the length of its border while it still has enough of a population to form a substantial army. He believes that a new Ribbentrop Molotov redivision of Europe between Russia and Germany are in the works and NATO forces moving to Poland, the Baltics and Romania are just initial steps to prevent that from happening.  

His former boss, Stratfor head George Friedman points out that the West must preserve the Slavic nations to keep Russian paranoia from enslaving them again. He points to German and other Nato's other member's passive response to Russian expansion and inability to make decisions as to strategic positioning as making NATO into a shaky institution with more support in Poland than Berlin.

Very interesting

George Friedman by the way also predicted a war between Poland and Turkey it's rediculous unless it comes from the mouth of a man like that

[0R0 + 6,251]

4 minutes ago, Tomasz said:

NATO has a military budget about 15 times larger than Russia. Even counting down the United States, European NATO members have 4 times more population than Russia and a military budget several times larger.

 

Russia has no phobia but sees that despite the agreement with Gorbachev NATO is constantly approaching the borders of Russia.

https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

NATO military budget 1036

NATO without USA 387 

Russia 61,7

Even if you count Purchase parity level there is a difference.

Absolutely. But that is due to a long history of Russian expansion. There is doubtless an attraction of Western Europe to go plunder Russian resources, but I think history has taken care of such impulses. Only Germany is in the kind of bind that would lead it to do something like that, and its inclusion and surrounding by NATO countries takes care of that possibility. NATO oddly enough, protects Russia as much as it threatens it. 

[0R0 + 6,251]

21 minutes ago, El Nikko said:

I really do enjoy what you write, regarding your comments about demographics it really got me wondering about where you were from because in the UK right now if you dare raise any question about our demographic change (rapidly happening) you will be totally ostracised and potential put in prison lol

 

That is one advantage of being in the US where your free speech has more meaning than "political correctness" at least outside of academia. Just try and check on what Moslem leaders in the UK are saying and ask yourself if they would not be in prison if they were ethnic English talking about Moslems rather than Moslems talking about Brits. I am pro multiculturalism and for polyglot countries, and I oppose crude nationalism, but I also believe in self determination and thus that a country's people retain the power to control migration so that they can retain their cultural and linguistic identity. I also expect that the burden of multiculturalism and tolerance be put upon the newcomers as well, so that they are not self segregating and if there are "hate speech" laws then they would apply to everyone pronouncing ethnic or religious based "hate statements". 

I should add that Zeihan as do other US based geopolitical and economic writers like to point out that they get lots of bookings and report writing business from Europe because the EU and EC can't go in and torch them when they veer away from the EC political union dogma. They can discuss reality without ramifications.

Edited March 7, 2020 by 0R0

[Andrei Moutchkine + 828]

21 hours ago, 0R0 said:

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.  

This is purely perceptual, because the Bank of Russia, which bakes the ruble, may actually not invest into Russian issues/papers. They only hold "reputable countries" assets. Strange for a central bank to be doing this, but true :) So, ruble is really a dollar by another name.

[0R0 + 6,251]

56 minutes ago, Andrei Moutchkine said:

This is purely perceptual, because the Bank of Russia, which bakes the ruble, may actually not invest into Russian issues/papers. They only hold "reputable countries" assets. Strange for a central bank to be doing this, but true So, ruble is really a dollar by another name.

Looks allot more like oil than the dollar

See @surrept33 ruble and oil chart

[footeab@yahoo.com + 2,194]

7 hours ago, Tomasz said:

 With all due respect, Russia has nowhere to go back - Kharkov is 400 kilometers from Moscow.

NATO forces in Estonia are about 150 km from Petersburg.

Tartus Port is the only Russian port on the Mediterranean Sea.

Russia has about 2-3 military bases outside its territory.

You don't give Russia really any choice because of NATO's constant expansion - it must focus on China.

 

So what?  Independent countries can join anything they want.  Who the Hell are YOU(Russia) to tell them no? 

Why would said independent countries, who were brutalized under your father's nation and who do not see Russia changing from its brutality of its own citizens, want ANYTHING to do with Russia?  To think otherwise is beyond absurd. 

Russia, wants nothing to do with the west other than its money.  Why would the west want anything to do with Russia other than its oil/NG?

[Boat + 1,325]

On 3/6/2020 at 12:33 PM, 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. 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.

 

Demand dropping 4-6 million barrels? You got some links for that? I sense hysteria taking hold. Lol

[BLA + 1,666]

24 minutes ago, Boat said:

Demand dropping 4-6 million barrels? You got some links for that? I sense hysteria taking hold. Lol

Yes

[BLA + 1,666]

Saudi Arabia never really cut production

Big deal. Look at ARAMCO's financial reports. 

Their 2018 Production 10 mm bbls/day. Their 2019 Production 10 mm bbls/day.  

EIA , IEA , OPEC , Analyst all projected increase in supply in 2020 from Shale, Norway, Brazil, Guyana.  So both Russia and Saudi Arabia both increased production in January and February in anticipation of new cuts at the March OPEC+ meeting.  ITS ALL A GAME.

The problem is coronavirus showed up.

Today's headlines herald "SAUDI ARABIA STARTS PRICE WAR WITH HUGE DISCOUNTS".   Bull.   The April contract settled the third Friday of February at $58.50.  The buyers have to commit to April volume purchasesthey will accept on the 10th of prior month, this Tuesday March 10th.  

Brent Spot price  $45.27

Brent April Contract Price $58.50

Saudis have to give huge discounts or no buyer will accept delivery.  

I hear Saudis want to produce 10 mm bbls/day.  They can produce 11 mm , but nobody to buy it.  

Saudi bluffing about increasing production is major faux pas.  Stupid Saudi move. 

It's going to be crazy pricing environment this year.

Russia is smart.  With the virus  any cuts would have very little effect.  OPEC has unsuccessfully tried to kill off U.S. shale in the past. Oil prices going down from virus. 

U.S. shale debt/loans bi-yearly review is in April.   The consolidation of the U.S. shale industry begins.

I believe filing for chapter 11 reorganization will not suffice.  The next chapter of shale will mandate top efficiencies where SIZE NOW MATTERS for survival.  

Buyers will name their price. 

This consolidation was inevitable.  The nature of the industry and OPEC cartel price support always kept the shale producers that destroyed their balance sheets 6 years ago in the game.  

Never Shalers note:  Shale is not going away.  Moving from weak sisters to the strong.  Big shakeup. Lower prices in the interim, Lower production until it all settles.  

U.S. production drops couple million barrels day until consolidation completes.

This is not the "old days" when OPEC Monopoly controlled price of oil.  

In the back of the producers and investors mind is , " what about electric cars" or "what about ESG"

Can't fight the virus.  Just need to survive the duration" and adopt to the " new" oil industry.

Edited March 9, 2020 by BLA

[wrs + 893]

KSA has lot's of storage to fill due to the massive draw downs needed to maintain deliveries since September.  So they can increase production but not exports because no one wants the oil if they don't have space for it.  Here in the US, imports from KSA have dropped 50% over the last year.  The real question is do US refineries need oil from KSA?  The real answer, NO.  The only way it's going to be needed is if it's going to a KSA owned refinery like Motiva or if it's much cheaper than inputs from closer suppliers.  My guess is that the oil imported here in the US from KSA is all consumed by Motiva. 

Edited March 8, 2020 by wrs

[Tomasz + 1,608]

At Pierre Andurand's well-known oil trader twitter acount I read that a large proportion of shale oil producers have protected themselves against fluctuations in oil prices in the 45/55 system.

This means that they have a guaranteed oil price of 55 dollars, but only on condition that the price is not lower than 45 dollars.

This is a person known for his extensive knowledge of the oil market, so I think you have to take this into account.

[BLA + 1,666]

37 minutes ago, Tomasz said:

At Pierre Andurand's well-known oil trader twitter acount I read that a large proportion of shale oil producers have protected themselves against fluctuations in oil prices in the 45/55 system.

This means that they have a guaranteed oil price of 55 dollars, but only on condition that the price is not lower than 45 dollars.

This is a person known for his extensive knowledge of the oil market, so I think you have to take this into account.

There was a great deal of hedging in January when WTI was +/- $60.  But most don't hedge 100%.  For example Conoco hedged 45% of their production.  

Also for how long ? 6 months ? A year ? Did they cash out when WTI dropped from $58 to $50.  

Don't get me wrong it all helps.  But this shakeout is real.  With real implications going forward.  

[Andrei Moutchkine + 828]

11 hours ago, 0R0 said:

Looks allot more like oil than the dollar

See @surrept33 ruble and oil chart

Yes, I know. I am explaining that there are no actual fundamentals behind this, only pervasive subjective expectations.

[Tom Kirkman + 8,860]

On 3/6/2020 at 6:32 PM, Tomasz said:

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.

The entire article is great analysis.

Question ... what the heck is "dions" ?

[Tomasz + 1,608]

6 minutes ago, Tom Kirkman said:

The entire article is great analysis.

Question ... what the heck is "dions" ?

I do not know what it means.

I only know that Macro Advisory and in particular Mr. Chis Weafer is one of the Westerners best informed about the Kremlin Russia and the former USSR in general.

In general, all his texts are at a very high level and for the quality of public discourse it would be good if he was more often invited to CNN, CNBC or Bloomberg.

 

So maybe one more text

By Chris Weafer of Macro-Advisory March 8, 2020

Quote

 

When Russia refused to back Saudi Arabia’s proposal for a deeper oil production cut in Vienna on March 6, it effectively fired the first shot in what looks like being an expensive and prolonged oil price war.

Against the backdrop of the Covid-19 crisis, which looks set to cut at least 2mn barrels of daily global demand, at least through 1H20, there is only one conclusion to be made: the price of Brent will test the low of early January 2016 when it briefly dipped below $30 per barrel (p/bbl)

At last week’s meeting, Russia only offered to extend the existing OPEC+ deal, which is set to expire at the end of this month, for a three further months and then to assess the situation. Saudi Arabia wanted Russia to participate in cutting an additional 1.5mn barrels per day (bbl/d) through Q2 in order to try and balance the global oil market. Having been rejected by Moscow, Saudi has responded very quickly with an announcement that it has no intention of extending the current deal and will “open up the oil taps” from April 1. It is already reported that the Kingdom is offering discounted oil.

At first glance, this looks like a battle between Russia and Saudi over oil policy. But the context of the relentless rise in US oil production over the past ten years is also an important factor. Both Russia and the major OPEC producers have been openly annoyed with the refusal of the US producers to participate in past production cuts and the fact that the US industry has been the major beneficiary of the price support mechanisms. It is a stretch to say that Moscow and Riyadh are in any sort of cooperation to try and reduce US oil production; the body language at the Vienna meeting strongly suggests otherwise. But if a price war results in some US casualties and a greater reluctance by investors and lenders to fund future US marginal production, then Moscow and OPEC will be relieved.

The table below shows the steady rise in US production over the past 10 years, from an average of 7.5mn bbl/d in 2008 to an average of 17.1mn bbl/d last year. US production averaged 18.4mn bbl/d in 3Q19 according to International Energy Agency (IEA) data - and using its methodology, which also captures other oil liquids as well as crude. That means that US market share has risen from under 9% to over 17% in the period. Saudi and Russia market shares have held steady in this period mainly because of the US sanctions against Iran and Venezuela and disruptions in Libya and Nigeria, all of, which have removed at least 4mn bbl/d from the global market.

It also raises the concern over who may next be subject to US oil sanctions if US production continues to rise and wants to displace other producers in the global market? There are at least a few in Moscow and Riyadh who have raised that question.

So, who is best positioned to fight an oil war and to live with $30 per barrel Brent, or even lower?

Moscow has bigger financial reserves than Saudi Arabia. Saudi Arabia holds the equivalent of $495bn as of end January while the latest figures from the Russian Central Bank show reserves at $570bn as of end February.

Saudi’s reserves have been declining during the last several years of oil price weakness and are down from a peak of $731bn at end 2014. Russia’s reserves have been growing and are up $100bn since January 2019 and are $190bn higher than the low of early 2017.

Russia has had to allow the ruble free-float from early 2015. This was a policy forced on the Kremlin as a result of the combination of western sanctions and low oil. That has turned out to be a major silver-living for the budget, as well as for economic competitiveness, and it means that the budget break-even oil price moves lower as the ruble weakens. Assuming the ruble-dollar exchange rate drops below 70 then the breakeven will drop to $45 per barrel. If the ruble-dollar rate hits 75 then the budget will breakeven around $40 per barrel without any cuts to current planned spending. This compares with a breakeven of $115 per barrel in 2013.

Saudi Arabia reportedly needs $85 per barrel to balance its budget and does not gain from a currency offset as the Riyal is pegged to the dollar.

Russian oil producers now have a very low production cost, exactly for the same reason of the ruble flexibility and also efficiency gains that the industry also had to adopt because of western sanctions.

President Putin will not have to worry about any political fallout amongst Russia’s so-called elites because of this action. It has been known for some that some of the powerful state oil executives have opposed the extension of the OPEC+ deal and wanted it ended. Rosneft, who’s 4.2mn bbl/d output is second only to Aramco’s 10mn bbl/d, has made no secret of its frustration with the deal and its desire to push ahead with new projects. After the recent US sanctions against a Rosneft Swiss trading arm, which the US accused of helping Venezuela sell oil, its powerful CEO, Igor Sechin, will not lose any sleep over damage caused to marginal US producers.

The same cannot be so confidently said of Saudi Arabia. Crown Prince Mohammed clashed with the former long-standing oil Minister Ali Al-Naimi over production policy. Naimi advocated a high-production policy to kill off competition while the Crown Prince wanted the OPEC+ deal. Naimi was fired from the post in 2016 and just ahead of the first OPEC-Russia deal. The fact that the Crown Prince has had senior royals, and potential competitors, arrested exactly as the OPEC+ deal was falling apart, is not likely to be a coincidence.

Who blinks first?

The oil price and oil producers will inevitably endure a bloody few months at least. The price of Brent will almost certainly test the early 2016 low of $30 p/bbl and this could it could be worse given the Covid-19 effect.

President Putin will not want to start scaling back budget spending, especially for the flagship national projects programme, a very ambitious $400bn programme to transform the economy and people’s living conditions by the end of his presidential term in May 2024. He will also not want to scale back on the promised social programmes and family supports that were a big part of his Federal Assembly Address in January. Especially not as public trust in his leadership has fallen to 35%, from 60% only two years ago.

If the oil price is still trading in, for example, the $20 to $30 p/bbl range in the summer, then this may change. Putin will be just as reluctant to run a big budget deficit or to reduce financial, reserves to a low level. That would leave the country vulnerable to future sanctions.

The hope in both Moscow and Riyadh is probably that either is forced to blink first and return to the negotiating table. The ideal scenario for both is that the marginal or high-cost oil producers quickly feel the pain and are forced to shutter production. It really is a waiting game and a test of both political nerve and financial reserves. The closing shoot-out scene of the spaghetti western,” The Good, The Bad, and The Ugly” comes to mind. But, whatever about the US producers, this time round Russia and President Putin are in a better position to fight this war than is Saudi Arabia or its Crown Prince.

 

 

[El Nikko + 2,145]

22 minutes ago, Tom Kirkman said:

The entire article is great analysis.

Question ... what the heck is "dions" ?

Dion's is a privately owned chain of pizza restaurants based in Albuquerque, New Mexico

Hmm their salad mix sounds quite nice actually

Edited March 8, 2020 by El Nikko

[HermitMunster + 146]

What a bloodbath...

[notsonice + 1,266]

Dow futures are dumping down 1000 at opening, Time for the US to protect its oil and gas industries with import tariffs and time for US refiners to start processing us oil. Time to screw the Saudis and stop protecting them and their oil. US needs to shove MBS out fast.

[surrept33 + 612]

WTI futures took massive dump -20% to $33 - was down to $30 when the trading opened.

Natural gas at 1.65 (-4%)

https://m.investing.com/commodities/

Edited March 8, 2020 by surrept33

[cbrasher1 + 272]

it's rough out here, watching the freefall...gonna finish this oxy frac job tonight then onto a 4 well pad, if i understand correctly it takes a few months for price to cycle into the actual working side? man I just hope I can keep on keeping on...gonna be a rough ride 

[H Himmel + 1]

On 3/7/2020 at 5:36 PM, 0R0 said:

Personally I am a cultural Russophile from the Russian enlightenment period, reading Dostoevsky and Rachmaninoff Prokofiev Stravinsky and Tchaikovsky and the gang of 5 accounting for nearly half my listening. 

I think the tragic Soviet era and the dissolution of the empire has devastated Russians. I don't have a real solution to their plight but Putin and his absurd phobias and placing himself at China's disposal is not helping things. As Russia empties of Russians, it becomes an increasingly attractive target for China's expansion so as to assure itself of food and energy resources.  

I you'd like a good, deep understanding of what happened to Russians and genetic selection conducted by the Soviets read "Gulag Archipelago" by Alexander Solzhenitsyn. This is the best account of the bolshevics' method to change the populace genetically.