Saudi Arabia to hike oil output above 10 mln bpd in April after OPEC+ deal collapse

[Hotone + 412]

How low will the price of oil drop?

State oil giant Aramco will boost its crude output after the current OPEC+ cut deal expires at the end of March, the sources said.

On Saturday, Aramco slashed its official selling price (OSP) for April for all its crude grades to all destinations, after OPEC’s oil supply cut pact with Russia fell apart on Friday, sending oil into a tailspin.

www.cnbc.com/2020/03/08/saudi-arabia-to-hike-oil-output-above-10-million-bpd-in-april-after-opec-deal-collapse.html

Edited March 8, 2020 by Hotone

[Tomasz + 1,608]

According to Art Berman

Quote

 

Perspective on $30 oil.

When oil was $30 in 2016, comparative inventory was +230 mmb & $30 did not last long. Today, it's -1.5 mmb. Inventories must build greatly to get to $30 on more than sentiment. 

OPEC's failure to act in 2014 didn't bring oil to $30 & is unlikely to now.

 

"Aside from Saudi Arabia, which could add more than 1 mmb/d very quickly, the only other countries with the ability to boost output by more than 100,000 kb/d are the United Arab Emirates & Russia."

Edited March 8, 2020 by Tomasz

[0R0 + 6,251]

32 minutes ago, Tomasz said:

According to Art Berman

"Aside from Saudi Arabia, which could add more than 1 mmb/d very quickly, the only other countries with the ability to boost output by more than 100,000 kb/d are the United Arab Emirates & Russia."

The issue is that it isn't in US inventory it is floating all round the S.China sea, in Korean storage etc. It can't show up in US inventories but it can show up in prices. 

[BLA + 1,666]

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.  

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 MATTERS.  

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 Shakers note:  Shale is not going away.  Moving from weak sisters to the strong.  Big shakeup. Lower prices in the interim, Lower production until it settles.  

Edited March 8, 2020 by BLA

[Hotone + 412]

9 minutes ago, BLA said:

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.  

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 MATTERS.  

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 Shakers note:  Shale is not going away.  Moving from weak sisters to the strong.  Big shakeup. Lower prices in the interim, Lower production until it settles.  

I hope you are right, but according to latest opinion from CNBC, Oil is heading to $20.

OPEC deal collapse sparks price war: ‘$20 oil in 2020 is coming’.  Get out from O&G stocks FAST.

https://www.cnbc.com/2020/03/08/opec-deal-collapse-sparks-price-war-20-oil-in-2020-is-coming.html

[BLA + 1,666]

1 hour ago, Hotone said:

I hope you are right, but according to latest opinion from CNBC, Oil is heading to $20.

OPEC deal collapse sparks price war: ‘$20 oil in 2020 is coming’.  Get out from O&G stocks FAST.

https://www.cnbc.com/2020/03/08/opec-deal-collapse-sparks-price-war-20-oil-in-2020-is-coming.html

I agree oil price will tank from here.  Could easily see $20's. 

Prices won't "normalize" until after virus abates and U.S. shale consolidated.

My point : Saudi Arabia not "starting a price war".  They are just trying to survive the current situation they find themselves.  

Saudis trying to defend market share with many millions of excess supply is fruitless. 

CNBC is correct.  Price war is hear.  

Russia is correct U.S. many shale producers will disappear only to be absorbed by the power players. 

Going to be a lot of hurt in the meantime.

The oil companies are in the same situation as the cruise ship companies.  Nothing you can do about the virus but just survive the duration of pandemic to fight another day. 

They call it a "Price War"

I call it "Free Market Completion"

Finally.

The Market will work it out.  The industry will look different in the end. 

There will be a lot of pain in the interim.

Too much oil to begin with.  In the back of the producers and investors minds is , "What about Electric Vehicles ?". or. "What about ESG, Environmental Social Governance?"

When digital cameras first came out not many people sold their Kodak stock.  They should have.  

 

Edited March 8, 2020 by BLA

[wrs + 893]

I think KSA is stupid, they are over reacting to this situation.  The behavior of their petulant baby king has already cost them a lot and it's going to cost them their position in the oil business.  Who is going to want to buy from them?  You can't trust them and you can't do deals with them.  How can this current behavior to destroy the oil price and by extenstion the value of the shares they just dumped on people not be seen as a bait and switch or better yet, pump and dump?  

I think MBS is going to find out that he just chopped his pecker off with his scimitar.

[Douglas Buckland + 6,308]

Guys! We are already over supplied with oil each and every day! Getting rid of production quotas and starting a price war can only worsen the glut!

The price is going to hit the floor and will not increase until this glut is dried up - why would the price react differently?

We are screwed due to greed and vanity.

[BLA + 1,666]

17 minutes ago, Douglas Buckland said:

Guys! We are already over supplied with oil each and every day! Getting rid of production quotas and starting a price war can only worsen the glut!

The price is going to hit the floor and will not increase until this glut is dried up - why would the price react differently?

We are screwed due to greed and vanity.

Competition in the oil industry was inevitable. 

The coronavirus just accelerated the process. 

This shakeout is going to hurt. No way to avoid it.

Saudis not starting a price war.  Just trying to defend market share for the duration . Futile effort.

The coup attempt was by those that were against MBS Plan to change KSA and mostly his decision to bring ARAMCO public.  

Saudis lose either way. It was a no win situation. The world is changing. This isn't the "old days" when OPEC Monopoly had control.

Edited March 8, 2020 by BLA

[wrs + 893]

Oopsies, MBS just cut off a bunch of peckers, including his own.

 

Middle East Indeces all crashing, Kuwait down 10% and halted, KSA down 8%.  Aramco below IPO now.

https://www.zerohedge.com/markets/market-bloodbath-middle-east-stocks-crater-kuwait-halted-aramco-below-ipo-dow-down-500

[surrept33 + 609]

https://www.nytimes.com/2020/03/08/business/saudi-arabia-oil-prices.html

 

Quote

 

Saudi Arabia slashed its export oil prices over the weekend in what is likely to be the start of a price war aimed at Russia but with potentially devastating repercussions for Russia’s ally Venezuela, Saudi Arabia’s enemy Iran and even American oil companies.

The Saudi decision to cut prices by nearly 10 percent on Saturday was a dramatic move in retaliation for Russia’s refusal on Friday to join the Organization of the Petroleum Exporting Countries in a large production cut as the coronavirus continues to slow the global economy and, with it, demand for oil.

The break in a three-year alliance between the Saudi-led oil cartel and Russia to support prices may be temporary. The moves over the weekend may well have been part of a negotiating chess game, and the Saudis and Russians can still reach a compromise. But if the collapse is lasting, oil executives say there is nothing to stop oil prices from tumbling to the lowest levels in at least five years.

“If a true price war ensues, there will be plenty of pain in the oil markets,” said Badr Jafar, president of Crescent Petroleum, a United Arab Emirates oil company. “Many will be bracing for the economic and geopolitical shocks of a low-price environment.”

A major drop in oil prices would hurt producers around the world, particularly Venezuela and Iran, whose oil-based economies are already under pressure from American sanctions. Export earnings of both countries have already been reduced to a trickle, and a further decline would stretch their abilities to pay for vital services and security.

The one bright spot may be at the gas pump. The average price of a gallon of regular gasoline in the United States, according to the AAA Motor Club, has already fallen five cents in the last week, to $2.40 from $2.45, and prices could easily drop below $2 a gallon in some states in the coming weeks. Lower-income drivers, who typically own older, less fuel-efficient vehicles and spend a higher percentage of their wages on energy, stand to gain the most.

But a prolonged price collapse would add to financial pressure on highly indebted American oil companies, dozens of which have gone out of business in recent years, with a decline in American oil production likely to follow. Oil companies have been laying off workers in Texas and other oil producing states.

Canadian oil sands development, already lagging because of environmental concerns and costs, stands to be hit hard by a price war. And developing countries that depend on oil, like Nigeria, Angola and Brazil, may suffer significant economic slowdowns.

The first big impact was felt by Saudi Arabia itself. Shares of Saudi Aramco, the Saudi national oil company, plummeted by more than 9 percent on Sunday, falling below its December initial public offering price of 32 riyals for the first time.

The Riyadh stock exchange fell more than 8 percent. On the Kuwaiti exchange, trading on a major index was halted after it tumbled 10 percent.

As they cut prices, Saudi officials are now preparing to ramp up the kingdom’s oil output to compensate for the lost revenue caused by lower prices. China, the biggest oil importer, has historically bought oil at cheap prices to stockpile for future use when prices rise.

Low oil prices, now about $45 a barrel for Brent crude, the international benchmark, and $41 for West Texas Intermediate, the U.S. marker, could also stoke public discontent with governments, including Saudi Arabia’s, as falling revenues mean less money for social and other programs used by governments to bolster support.

Saudi Arabia is the world’s largest oil exporter and has been producing about 9.7 million barrels a day, well under its roughly 12 million-barrel-a-day capacity.

Whether producing more oil will help the kingdom is another question. There is no easy cure for the predicament that Saudi Arabia and the rest of the oil industry face. The world is awash in oil, analysts say, and demand will probably continue to decline.

The prospect of more oil on the market could accelerate the collapse in prices, which have fallen about a one-third this year.

Both Russia and Saudi Arabia appear to be acting for short-term advantage with risky strategies. Russia has gained significant political clout in the Middle East by aligning with OPEC. Helping to support oil prices in concert with Saudi Arabia and other Persian Gulf states has helped the government of President Nicolás Maduro survive in Venezuela. Now, the Russians have chosen to go it alone, refusing to coordinate with OPEC in proposed production cuts perhaps in the hope of undercutting American oil producers.

For Saudi Arabia, cooperation with Russia had reinforced OPEC’s clout at a time it is being threatened by the recent surge in American oil production that has turned the United States into a major crude exporter for the first time in decades.

“Saudi Arabia is protecting its market position in the face of a collapse in oil demand, a shrinking physical market and greatly reduced prices,” said Sadad al-Husseini, a former executive vice president of Saudi Aramco. He argued that both Russia and Saudi Arabia would “come out of this down cycle as stronger players, while shale oil, oil sands and other costly or politically unstable producers struggle for financing.”

But their success is far from certain.

The last time Saudi Arabia and other OPEC members allowed global supplies to rise in the face of increasing volumes of oil from shale producers in the United States was in late 2014, and prices plummeted to below $30 a barrel. Two years later, Russia joined with OPEC in a production pact that has helped prop up prices for the last three years by coordinating cuts in output.

But OPEC’s intention in 2014 of undercutting American and other producers backfired and reduced its share of the market. American oil companies managed to increase production anyway, as they became more efficient at drilling through shale and investors continued to pour money into their enterprises. This time may be different, though, because Wall Street has grown tired of sluggish oil investment returns and the high debts of many small and medium-size companies.

At the meetings at OPEC’s headquarters in Vienna last week, Russia declined to go along with a Saudi-led proposal to cut 1.5 million barrels a day, or around 1.5 percent of global supply, to deal with plunging demand because of the spreading coronavirus epidemic. The two sides also failed to agree on an extension of existing cuts of 2.1 million barrels a day. That failure opens the way for increases by those producers that do have additional capacity.

“If you are Russia, it’s worth it for you to take a three-month price hit to see if you can knock out U.S. oil exports,” said Amy Myers Jaffe, an oil and Middle East expert at the Council on Foreign Relations. “They might be correct for three months but the shale never gets destroyed.”

She said that the divergence in Saudi and Russian strategies “signals that the relationship between Saudi Arabia and Russia is on the skids.”

In a report published last month, the International Energy Agency, the Paris-based monitoring group, said the Saudis could produce more than 2 million barrels a day more while the United Arab Emirates, Kuwait and Iraq could add roughly 1 million barrels a day between them.

Falling prices are a huge problem for Saudi Arabia and other oil-dependent nations. Low prices erode the petroleum revenues that sustain the government budgets of these countries.

Jim Krane, a Persian Gulf analyst at Rice University’s Baker Institute, said that oil prices were already well below the $80-a-barrel level that the Saudis need to finance government spending.

A weakened Aramco share price could be a blow to the prestige of the country’s crucial decision maker, Crown Prince Mohammed bin Salman. He led the campaign to bring Aramco to the public markets, and many Saudis bought shares.

The crown prince’s ambitious and expensive economic development program, known as Vision 2030, could also be in trouble, Mr. Krane said, if oil producers open the taps and beat down prices.

“A price war would cause the Saudis to put the entire Vision 2030 diversification plan on hold, while the kingdom hunkers down on austerity wages,” Mr. Krane said.

In what may signal increasing political jitters in the kingdom, the prince has detained members of the royal family considered to be potential rivals for his authority.

 

 

[0R0 + 6,251]

19 minutes ago, surrept33 said:

The one bright spot may be at the gas pump. The average price of a gallon of regular gasoline in the United States, according to the AAA Motor Club, has already fallen five cents in the last week, to $2.40 from $2.45, and prices could easily drop below $2 a gallon in some states in the coming weeks. Lower-income drivers, who typically own older, less fuel-efficient vehicles and spend a higher percentage of their wages on energy, stand to gain the most.

 

Filled at $1,93 just to find the station selling at $1.81 the next day. 

[0R0 + 6,251]

20 minutes ago, surrept33 said:

A major drop in oil prices would hurt producers around the world, particularly Venezuela and Iran, whose oil-based economies are already under pressure from American sanctions. Export earnings of both countries have already been reduced to a trickle, and a further decline would stretch their abilities to pay for vital services and security.

 

I think that is part of Saudi's rogues' gallery of targets. Choke Iran and make Venezuela look like a repulsive investment target in order to delay re-development of that very large potential supply. 

20 minutes ago, surrept33 said:

The break in a three-year alliance between the Saudi-led oil cartel and Russia to support prices may be temporary. The moves over the weekend may well have been part of a negotiating chess game, and the Saudis and Russians can still reach a compromise. But if the collapse is lasting, oil executives say there is nothing to stop oil prices from tumbling to the lowest levels in at least five years.

 

It isn't just a chess game with Russia. Oil profits may be a small portion of Russia's GDP. But oil and gas revenues are a large chunk of it. Their oil costs may be denominated in Rubles but there is a real cost that they can't escape. Their breakeven at $42 for the government is not shared by the oil companies. They DON'T break even at that price. They can't service their capital costs at these prices. From the published discounts Saudi's are offering at key markets they are targeting Russian customers deliberately so as to cut off Russia's revenues as rapidly as they can. $35 at N. Sea ports is not a market share ploy. It is an attempt to cut off Russian revenues entirely. That would presumably bring Russia to the table again to do as OPEC has always done to control the price floor on oil..

Russia is thinking that by crashing oil they can reduce shale gas competition. While that is true for a while, the gas volumes are sticky because the shale wells become gassier as they age. Besides which, gas from dry gas fracking is already being produced at $2. So the tightening up of the gas market that Russia is expecting as a result of low oil prices is not really going to be enough to restore their old $8/MMBtu prices. The boat has left the harbor 2 years ago. The Russian gas torrent of cash is gone forever and their second Baltic pipeline will never pay off. Russia's NG geopolitical games are a thing of the past. Hungary and Romania can already get NG from both Polish LNG trains in the Baltic and those in Croatia. Eastern Mediterranean gas will further eat Russia's market share and pricing. 

The competition is healthy - to the extent that it is competition. Part of it is corralling Russia back into the OPEC herd to restore the price floor setting mechanism.  

[Gerry Maddoux + 3,627]

14 minutes ago, 0R0 said:

Their breakeven at $42 for the government is not shared by the oil companies. They DON'T break even at that price.

How do you know this, especially after the big Yamal Peninsula find?

[Gerry Maddoux + 3,627]

15 minutes ago, 0R0 said:

Part of it is corralling Russia back into the OPEC herd to restore the price floor setting mechanism.  

I don't think this will ever happen.

[Gerry Maddoux + 3,627]

16 minutes ago, 0R0 said:

The Russian gas torrent of cash is gone forever and their second Baltic pipeline will never pay off.

A large part of this was a loss leader for the purpose of hegemony.

[Tomasz + 1,608]

Break even for Nord Stream II is 150 $ per mbbtu according to kommersant.

[0R0 + 6,251]

8 minutes ago, Gerry Maddoux said:

I don't think this will ever happen.

That is how it did happen after the 2014 war on shale. It ended up with Russia jumping on to the cartel boat. Things are different this time, but not that different. Russia's improved finances don't compensate for a large drop in revenue for several quarters. 

[0R0 + 6,251]

5 minutes ago, Tomasz said:

Break even for Nord Stream II is 150 $ per mbbtu according to kommersant.

Are you sure about the units?

[Tomasz + 1,608]

Sorry 4,5 $ per mbbtu or 150 $ per 1.000 cubic meters.

[0R0 + 6,251]

12 minutes ago, Gerry Maddoux said:

How do you know this, especially after the big Yamal Peninsula find?

That one is going to do fine, but it still needs to recover its capital. And the hit on gas volumes and prices was unplanned and I don't believe that it isn't having an effect on the project funding, as there is still more infrastructure and development work to do. 

As to the Hegemony attempt with gas extortion. I think that one has been put to bed permanently. LNG is expanding at a breakneck speed and there will be duplication of capacity to counter most of Russia's supplies. The entire gas diplomacy paradigm for Russia is dying. If they try to play "pull the rug" games with Europe next winter, their position as a supplier will be demoted to "unreliable spot source" and they will not obtain further long term contracts, just sell at spot. 

[0R0 + 6,251]

13 minutes ago, Tomasz said:

Sorry 4,5 $ per mbbtu or 150 $ per 1.000 cubic meters.

They are not getting that any longer. So the project finances are bust. 

[Tomasz + 1,608]

49 minutes ago, 0R0 said:

They are not getting that any longer. So the project finances are bust. 

Well if you can send LNG to Europe at 150 $ with profit you might be right. According to Oxford Institute Energy Studies breakeven is something about 6-8 $ per mbbtu.

Really show me who can send LNG to Europe at these prices with profit.

You can start with reading these report because I think its most authorative analyst institute for NG and LNG in the world called Oxford Institute for Energy Studies

https://www.oxfordenergy.org/wpcms/wp-content/uploads/2019/03/Outlook-for-Competitive-LNG-Supply-NG-142.pdf?v=9b7d173b068d

Its only break even prices so I assure you would like also to earn some money on sending your LNG to Europe.

Long term contract for Quatar gas to Poland is 16 % of brent plus 0,5 $ per mbbtu

Standard price is about 10-12 % of Brent per mbbtu

Gazprom cost production is lower than 1 $ per  mbbtu.

 

I'm starting to wonder if all shale oil and shale gas fans understand that business is about making money, otherwise it's a charity. Because I do not quite understand whether this activity is to be based on the fact that by producing oil and gas below the full cost of production for some years and increasing export year by year, the US plans to  de facto subsidize the rest of the world.Americans have always looked to me very business-efficient so I just don't understand it.

Please do tell me if Cheasapeak is normal energy company or not because I really have some doubts about that.

I am looking for volunteers willing to invest in this company over the years.

Edited March 8, 2020 by Tomasz

[0R0 + 6,251]

31 minutes ago, Tomasz said:

Well if you can send LNG to Europe at 150 $ with profit you might be right. According to Oxford Institute Energy Studies breakeven is something about 6-8 $ per mbbtu.

Really show me who can send LNG to Europe at these prices with profit.

You can start with reading these report because I think its most authorative analyst institute for NG and LNG in the world called Oxford Institute for Energy Studies

https://www.oxfordenergy.org/wpcms/wp-content/uploads/2019/03/Outlook-for-Competitive-LNG-Supply-NG-142.pdf?v=9b7d173b068d

Its only break even prices so I assure you would like also to earn some money on sending your LNG to Europe.

Long term contract for Quatar gas to Poland is 16 % of brent plus 0,5 $ per mbbtu

Standard price is about 10-12 % of Brent per mbbtu

Gazprom cost production is lower than 1 $ per  mbbtu.

 

I'm starting to wonder if all shale oil and shale gas fans understand that business is about making money, otherwise it's a charity. Because I do not quite understand whether this activity is to be based on the fact that by producing oil and gas below the full cost of production for some years and increasing export year by year, the US plans to  de facto subsidize the rest of the world.Americans have always looked to me very business-efficient so I just don't understand it.

 

The figures they use are outdated. The technology is moving fast. Shipping is essentially free on LNG powered ships that use the boil off gas that would otherwise have been flared. LNG liquefaction is done on the Gulf coast at $2/MMBtu and still makes a profit for Cheniere. The gas price at the well head for TX shale is under $1 most of the time and generally below $2. It is a waste product. Thus the cash breakeven cost is $3, and all in $4. The report publication date does not indicate current practices. The same can be said for Guyana deep sea and Yamal gas byproduct from oil production. 

The economics of LNG are still a moving target. Prices crashed long before the coronavirus outbreak. Yet the LNG trade was making money, though far less than they expected to make.

[Tomasz + 1,608]

So can we back to reality.

If you dont believe Oxfrod Institute maybe you will believe your US goverment agency called EIA.

Its port of exit so you should add 1,5 $ for final price

https://www.eia.gov/dnav/ng/NG_MOVE_POE2_A_EPG0_PNG_DPMCF_M.htm

Lets see UK - closest US ally 

2018 prices 5,77 plus 1,5 = 7,27 260 $ per 1.000 m3

2019 5,35 plus 1,5 = 6,85 245 $ per 1.000 m3

Client state Poland

2018 7,12 plus 1,5 307 $

2019 5,71 plus 1,5 7,21 257 $

Gazprom is selling gas to Poland arround 190-200 $ per 1.000 m3 in 2019.

 

 

 

Edited March 8, 2020 by Tomasz