Saudis took a high risk strategy. They screwed up. Now they want Russia, U.S., OPEC Members to come and beg to let them cut oil production.

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The Aramco earning call was a farce.  "We"re very comfortable with $30 oil"  or "We can last year's and pay our dividend with $25 oil " .  Yea, right.

The Aramco posturing as if they knew that oil would trade in the twenties was deliberate and their plan. That is false.  Saudis wanted Russia to come back to the negotiating table.  But they over shot. 

MBS and brother ABS (Tweedledee and Tweedledum of OPEC) took a very high risk strategy and it didn't work.  Even the Salman brothers know their reign would not survive $25 oil for two years.  

Any pain and damage the Saudis inflict on Russia or U.S. shale would be temporary.  Saudi Arabia wanted and needed U.S. and Russia to fully support and participate in production cuts. Not going to happen.  

Their scorched earth strategy is a desperate move . It's s loser move. It may be a suicide move.

Shale will probably drop up to 2 million bbls over next 18 months.  But more due to virus than OPEC actions and will rebound after the shale consolidation. 

How fast this happens is in question. Majority of Shale Producers hedged at least part of their production at and around $58 to $62.  Of course MBS and ABS didn't consider this.  This will affect the timing. 

What happens next ? How do Saudis and OPEC save face ?  Can OPEC take any effective action until the virus is under control ?

* Iraq today calling for an emergency OPEC and NON-OPEC Meeting . Bet you U.S. companies are invited. 

* Saudis and OPEC  Secretary General made a joint statement today that many OPEC Emerging Market Members that depend on oil revenues could lose 85% of those oil revenues. More doomsday talk. "How can we save them ?"

* American Petroleum Institute (API) told Trump they don't want a bail out but want to "balance" the market.  Notice the API's use of OPEC's favorite word "balance"

Some analyst believe Saudis leased tankers to enable them to FLOOD the U.S. with oil.  More bluster and threats from Saudi Arabia. 

I believe it's not a matter of if . . . but rather a question of when there will be talks of U.S. working with OPEC.  It will be interesting to see who initiates the talks. 

The talks will begin when Saudis inflict maximum pain.  When oil breaks below $20 bbl

The U.S. should let the oil industry take its natural course.  The weak will be culled.  The strong will consolidate shale producers.  The world will be better off with stronger competitive energy companies with reasonably priced product. 

No production cuts, or government oil purchases is going to revive the oil market.  Just need to gain control of the coronavirus. 

Edited March 18, 2020 by BLA