BL

Authors of this article believe it was Saudi Plan all along to dig in for 2 year price war.

Recommended Posts

(edited)

That is ridiculous.

The Salman Brothers MBS and ABS miscalculated .  Their reign would not survive even 1 year at $25 oil, much less 2 years.

The Aramco earnings conference call was a joke.  Liars.

The article has some interesting theories.

https://www.bloomberg.com/news/articles/2020-03-18/the-saudi-crown-prince-s-plan-to-win-the-global-oil-war

MBS and ABS = The Two Stooges

Just have to wait out the virus.  Nobody knows how long it will take. 

 

Edited by BLA
  • Upvote 1

Share this post


Link to post
Share on other sites

(edited)

John R. Bradley

https://www.spectator.co.uk/article/crude-tactics-russia-and-saudi-arabia-s-war-over-oil-prices

Crude tactics: Russia and Saudi Arabia are at war over oil price

 

Quote

 

14 March 2020, 10:00am

It all started at what every-one thought would be a routine meeting between Opec and non-Opec nations in Vienna. There were the usual fake smiles and firm handshakes in front of the cameras from the dignitaries. Bored journalists roused themselves to prepare to write stories they expected never to be read, before they could at last head to the pub. And then, out of nowhere, came a bombshell.

Downward pressure on oil prices from the coronavirus panic was posing an obvious risk to Saudi Arabia’s still heavily oil-dependent economy. And this is what a cartel like Opec is for: to agree to release less oil into the market, pushing the price back up. A Saudi-led motion proposed a cut of 1.5 million barrels per day. To everyone’s shock, Russia rejected this outright. The market was already saturated, the Russians insisted, and henceforth the price should be determined by market forces. It was the very last thing the Saudis wanted to hear.

Mohammed Bin Salman, the kingdom’s de facto leader, is already infamous for making wildly impulsive decisions that have global (invariably negative) ramifications. He became hellbent on punishing the treacherous Russians. Aramco, the kingdom’s oil giant, immediately slashed prices to its key markets — most crucially China, the Saudis’ and the Russians’ most important customer — and promised to increase output within weeks by a staggering two million barrels per day. The result was immediate, and hit world markets almost as hard as coronavirus did.

Oil prices dropped by a third overnight, the biggest fall in three decades. The Dow lost more than 8 per cent, the FTSE 100 almost 9 per cent, Royal Dutch Shell and BP, the UK’s biggest energy companies, lost more than £32 billion — or about 20 per cent — from their combined market value. And all this as the WHO prepares to declare the coronavirus — which has already brought much of the global economy to its knees — a pandemic. Donald Trump quickly put two and two together. ‘Saudi Arabia and Russia are arguing over the price and flow of oil. That, and the Fake News, is the reason for the market drop!’ he tweeted, emphasising once again that he considers media reaction to the coronavirus outbreak to be hysterical.

How will Trump react to the fact that his ally Bin Salman is out to destroy the US oil industry?

Trump is facing two different risks. The coronavirus is enough of a problem, but there is another threat: that a pandemic could be used as cover for an assault on America’s recently acquired status as the world’s top oil producer. When the US was dependent on imports, low oil prices would have been welcome. But now that fracking has made America a net exporter of oil, it has new vulnerabilities. These are now being tested.

That’s why, this time, the Russians didn’t want to play the Saudi game. As far as Moscow sees it, it’s dangerous to cut oil production, because it would end up creating more demand for American oil. That would stabilise oil prices, but America would end up stronger. How could such an outcome possibly benefit Russia? Vladimir Putin thus put the motherland first, and unceremoniously abandoned a three-year supply pact with Saudi Arabia — it officially expires next month — whose goal had been to keep oil prices artificially high. (So much, incidentally, for Putin’s apparent determination to help Trump’s re-election campaign at every turn.)

The oil war is not all bad news for the US. It will still bring lower prices at the petrol station and is, in itself, a fairly decent stimulus. A Russia--Saudi fall-out will also be welcome on the back of a bitter dispute between Russia and Turkey (a Nato member) that recently left their armies fighting each other in northern Syria. Then there is Iran. Lower oil prices will further damage the economy of what is Russia’s most important regional ally, but America’s arch-enemy.

With the election looming, however, Trump’s focus is on the stock market, and at first glance understandably so. For the most part, Americans do not decide how to vote based on foreign policy matters. And since he obsessively takes the credit when the stock market re

aches new highs, Trump fears being blamed when it tanks.

For ordinary Americans, the far more important issue is that no matter who wins the game of chicken between Russia and the Saudis, the US fracking industry will be the loser. Russia has nonchalantly made it clear that Moscow has enough resources to cover budget shortfalls for six to ten years even with oil prices at $25 a barrel. In contrast, the US fracking industry has an estimated $86 billion of rated debt due in the coming years. If the Saudis make good on their promise of flooding the global market with cheap oil — and they may be left with little choice — it could soon prove fatal for US shale producers, as investors tire of throwing money into their bottomless holes.

One wonders how Trump — who hates personal disloyalty more than anything — will react when he wakes up to the fact that the Saudi leader he has stuck with through thick and thin is now out to destroy the domestic industry Trump is most proud of. At the same time, one wonders, too, whether Bin Salman will ascend the throne and maintain the support of the Saudi masses during what are going to be years of unprecedented economic and political turmoil. Until now, he has essentially adopted the Singaporean model of governance, albeit with a brutal Arab bent: granting personal freedoms but restricting political participation in the name of social stability and economic growth. It worked in Singapore and the other Asian Tiger countries because elites delivered on their promises. It is increasingly clear, though, that Bin Salman will be unable to deliver on his.

As on many previous occasions — most obviously, in launching the disastrous war against Yemen and ordering the barbaric murder of Jamal Khashoggi — it is difficult to understand what motivates Bin Salman. Is he acting out of pure rage? Does he seriously believe that, as the global economy heads towards recession, there will be greater demand for Saudi oil to make up for the falling prices? Whichever way you look at it, his behaviour is inexplicable.

Everywhere you look in Saudi Arabia, disaster seems to loom on the horizon. This week the region of Qatif, a Shia stronghold in the oil-rich Eastern Province, was put under quarantine for two weeks because of coronavirus. All international visitors are now banned from entering the country, just months after the new tourism industry — part of a drive to diversify the economy away from oil — was launched. Mosques in Mecca and Medina have been closed, the umrah — or lesser pilgrimage — put on hold, and barring a miracle eradication of the virus in the next few months, the annual hajj will be cancelled for the first time ever. This means billions of dollars of lost revenues in a country with a colossal $50 billion budget deficit and which — because of Bin Salman’s most recent reckless move — is preparing an emergency budget for this year based on oil being as low as $12 a barrel.

Meanwhile, military checkpoints have been set up all over Riyadh, the capital, after Bin Salman launched yet another purge of perceived rivals. Dozens of senior princes, interior ministry big wigs and military figures were arrested and accused of planning an imminent coup with the help of Washington’s intelligence agencies. So Bin Salman, having alienated Russia and gone to war against the American shale industry, finds himself more isolated internationally than ever, and with no powerful friends or allies at home apart from the ailing king. He has torpedoed the world economy, and in doing so may have created other problems much closer to home.

 

ser to home.

Edited by Tomasz
  • Like 1
  • Great Response! 1
  • Upvote 2

Share this post


Link to post
Share on other sites

2 hours ago, BLA said:

That is ridiculous.

The Salman Brothers MBS and ABS miscalculated .  Their reign would not survive even 1 year at $25 oil, much less 2 years.

The Aramco earnings conference call was a joke.  Liars.

The article has some interesting theories.

https://www.bloomberg.com/news/articles/2020-03-18/the-saudi-crown-prince-s-plan-to-win-the-global-oil-war

MBS and ABS = The Two Stooges

Just have to wait out the virus.  Nobody knows how long it will take. 

 

Playing devil's advocate, if only because it's entertaining:

This might be Saudi Arabia's (SA) best option.  It's not a good option, but possibly their best.  The situation:
1) Breakeven price is a function of how much they sell.  Increase export volume, and your breakeven decreases.
2) Breakeven price is also a function of expenses.  With an appropriately marketed crisis, SA might convince the population to take a haircut.
3) Someone will go bankrupt first, and it probably won't be SA.  There are small, exporting countries who lack financial reserves - not to mention stable governments.  They may break before SA does. 
4) SA was losing market share, making their long-term prospects worse than a first glance would suggest. 

Given all that, I think it's possible Saudi Arabia did some financial modeling and realized this was their least-worst option. 

Then again, the country is horribly corrupt.  They might just be morons.  Does anyone have additional data or thoughts on this?

  • Upvote 1

Share this post


Link to post
Share on other sites

(edited)

2 hours ago, BenFranklin'sSpectacles said:

Playing devil's advocate, if only because it's entertaining:

This might be Saudi Arabia's (SA) best option.  It's not a good option, but possibly their best.  The situation:
1) Breakeven price is a function of how much they sell.  Increase export volume, and your breakeven decreases.
2) Breakeven price is also a function of expenses.  With an appropriately marketed crisis, SA might convince the population to take a haircut.
3) Someone will go bankrupt first, and it probably won't be SA.  There are small, exporting countries who lack financial reserves - not to mention stable governments.  They may break before SA does. 
4) SA was losing market share, making their long-term prospects worse than a first glance would suggest. 

Given all that, I think it's possible Saudi Arabia did some financial modeling and realized this was their least-worst option. 

Then again, the country is horribly corrupt.  They might just be morons.  Does anyone have additional data or thoughts on this?

Break even goes down for many mfg businesses. 

However, Saudi oil costs is inelastic.  Whether it's 9 mm bbls and 12mm bbls.  

I think Saudis are clueless.  The survival of KSA and the Royalty  depends on oil revenue.

This crisis may cost them more than a serious hit on their Wealth Find. 

Edited by BLA
  • Upvote 1

Share this post


Link to post
Share on other sites

On 3/18/2020 at 11:26 AM, Tomasz said:

John R. Bradley

https://www.spectator.co.uk/article/crude-tactics-russia-and-saudi-arabia-s-war-over-oil-prices

Crude tactics: Russia and Saudi Arabia are at war over oil price

 

ser to home.

I don't see any problem with tariffing Saudi and all other imported oil aside from heavy Canadian crude. The trade competition has been going on forever. We tariff many products that are used to flood our market.

  • Upvote 1

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
You are posting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.