The GREAT OPEC+ Agreement

[TNK + 8]

What a joke, it will avoid US tariffs while doing nothing to halt the collapse of prices. First and foremost - History tells us that ALL production cut "deals" are a joke - they are typically violated within the 1st week of implementation. Secondly - Saudi Arabia, within the past few days, gorged on lining up tankers - conveniently, they left until May to implement the supposed cuts - until then, they will have the spigots WIDE OPEN.  

[Chris Tarjeft + 22]

No one wants to sell a barrel of oil for 50% less than they were getting only a few weeks ago.. Price will rebound to median very rapidly and likely full rebound as world gets moving again.  In the short term companies do what they have to in order to survive it.

[Gerry Maddoux + 3,627]

30 minutes ago, Chris Tarjeft said:

Price will rebound to median very rapidly and likely full rebound as world gets moving again.

Chris, I like your confidence but how is the world going to get moving again? About the only way I see that happening is if this virus is "seasonal" and goes into a silent pout on its own or the hydroxychloroquine turns out to be a silver bullet. 

IOW, I'm not at all sure that most people have peaked over the hill to see what lies ahead, post-coronavirus. I can't imagine restaurants, bars, barber shops, the DMV, people-to-people contact places opening up to business as usual until there's some assurance those people will survive the experience. 

Not to try to dampen your enthusiasm but I think we skipped right through the recession part and are now, very likely, in a depression. With depression era unemployment numbers (likely will reach 20-25%). I think the stock market will bottom out again, only much lower this time, probably to a Dow of 12,500--about where it was before the crash of 2008. What we are going through is going to take a few years to recover from as we're going to come out of it with the largest national debt ever imaginable by the drunkest of men. Inflation has to run rampant. 

About the only thing that can save the oil business right now is a massive infrastructure project across America, and a complete ban of across-the-water oil, at the same time putting a cap on prices at or about $60. I just don't see any other way out at this point--too much has occurred, too much demand destruction, too much debt-making and destruction, too much storage all across the world. We have reached a stage of oil warfare. Compare it: we were in medical or viral or call it what you will warfare with China since SARS, but let it go. We let this go, let our entire United States petroleum business go, we're looking at hostage prices. 

[BLA + 1,666]

1 hour ago, TNK said:

What a joke, it will avoid US tariffs while doing nothing to halt the collapse of prices. First and foremost - History tells us that ALL production cut "deals" are a joke - they are typically violated within the 1st week of implementation. Secondly - Saudi Arabia, within the past few days, gorged on lining up tankers - conveniently, they left until May to implement the supposed cuts - until then, they will have the spigots WIDE OPEN.  

Did Trump cut a deal with Saudis ? No tariffs if OPEC cuts 10mm ? 

Saudis only really cut 1.5 mm not 4mm and that's only if the Saudis  comply.

You know Russia won't. 

The rest of OPEC+  are supposed to divi up the other 5 mm.  That's a joke too. 

Did Trump really promise Saudis no tariffs ? Tell me it ain't so. 

Looks like Trump is protecting Majors and Saudis or just plain stupid. 

The Saudis must have some dirt on the Donald. 

Edited April 10, 2020 by BLA

[Eyes Wide Open + 3,554]

I am in complete agreement, 

13 minutes ago, Gerry Maddoux said:

Chris, I like your confidence but how is the world going to get moving again? About the only way I see that happening is if this virus is "seasonal" and goes into a silent pout on its own or the hydroxychloroquine turns out to be a silver bullet. 

IOW, I'm not at all sure that most people have peaked over the hill to see what lies ahead, post-coronavirus. I can't imagine restaurants, bars, barber shops, the DMV, people-to-people contact places opening up to business as usual until there's some assurance those people will survive the experience. 

Not to try to dampen your enthusiasm but I think we skipped right through the recession part and are now, very likely, in a depression. With depression era unemployment numbers (likely will reach 20-25%). I think the stock market will bottom out again, only much lower this time, probably to a Dow of 12,500--about where it was before the crash of 2008. What we are going through is going to take a few years to recover from as we're going to come out of it with the largest national debt ever imaginable by the drunkest of men. Inflation has to run rampant. 

About the only thing that can save the oil business right now is a massive infrastructure project across America, and a complete ban of across-the-water oil, at the same time putting a cap on prices at or about $60. I just don't see any other way out at this point--too much has occurred, too much demand destruction, too much debt-making and destruction, too much storage all across the world. We have reached a stage of oil warfare. Compare it: we were in medical or viral or call it what you will warfare with China since SARS, but let it go. We let this go, let our entire United States petroleum business go, we're looking at hostage prices. 

I am in complete agreement, the US has demand a need for mfg infrastructure high unemployment and plenty of cash looking for a safe place to hide/invest. 

I do have a great deal of concern with military/hostile retaliation from China, there is a lot of risk out there let us all hope self preservation is at the forefront of world mind's.

Perception is everything right now...place your bets on a sure thing is on everyone's mind.

[Jan van Eck + 7,558]

10 minutes ago, Gerry Maddoux said:

Not to try to dampen your enthusiasm but I think we skipped right through the recession part and are now, very likely, in a depression. With depression era unemployment numbers (likely will reach 20-25%).

We blew right through that 20% number already, in unemployment claims, here in sleepy Vermont.  The numbers have crushed the intake computer capabilities, so no one knows how many are unemployed, probably at the 30% end.  That is huge.  What then happens is that the State itself rapidly runs out of cash, as income tax receipts, sales tax receipts from the locals and tourists  (the rooms and meals tax), and excise taxes on gasoline and diesel not purchased, strangles the State Government cash flow.  Meanwhile on the expense side of the ledger the costs for the Health and Human Services skyrockets.  The State thus has to go out there into the commercial lending market and go borrow.  With what collateral?  None.  

Resurrecting a rural, vacation economy from 30% unemployment is going to be a huge exercise.  I don't see it.  The largest manufacturing town in Vermont, Rutland, with 16,000 population, has two big employers: the hospital, with 1,700 staff, and General Electric Aviation, with 1,200.  GE just laid off 840 workers "indefinitely."  Those two plants make jet engine fan blades and compressor discs; where is the demand for those parts, given that some 90% of the aviation fleets are parked?  Will the plants close, the work to be consolidated at other plants with lower labor costs?  Probably.  And then what?  Can you take 1,200 manufacturing jobs out of a town of 16,000 and keep the wheels on?  Starts to look doubtful. 

22 minutes ago, Gerry Maddoux said:

We let this go, let our entire United States petroleum business go, we're looking at hostage prices. 

I think that result can be anticipated.  Will the current Administration place import quotas on offshore oil?  Probably not.  Why should they?  Cheap oil is a local bonanza, it will speed short-term recovery in all sectors - except the oil sector.  The USA is not noted for long-term thinking.  Long term, the offshore producers will own the market.  You can assume they will extract penalty prices. In short, the US will be back to generating wealth, and the oil countries will resume extracting and converting that wealth for themselves. 

[James Regan + 1,776]

Ever since President Trump sent oil prices sky high with a single tweet about the potential OPEC+ production deal, the White House has been quite non-committal in joining along in these supply cuts, even though US shale is a clear target should oil market destruction escalate any further. Particular US companies, such as Pioneer Resources and Parsley have spoken up about 20-30% production cuts, but majors such as Chevron insist it should be left to market forces. Canada, which has already shuttered several oil sands projects as the oil price ticks lower, is now looking at nearly 1.1 million bpd of curtailments in 2Q20, and has expressed interest in joining a global oil market management program.

A usual the devil is in the details and there are still many important questions that remain unanswered. Despite the many unknowns, one thing certain with this deal is that OPEC countries are once again coming to the rescue. - Rystad

Now the fundamentals;s don't really matter, any nuances which had affect on the prices are not required, even the untrained eye can now see quite clearly that you cannot over fill the bath with bathwater without consequences. If KSA and Russia have made their cuts today and the US continues producing with no visible proclamation of making cuts this will not be taken as well. Production cuts by failing oil companies having to shut in cannot be considered conscious production cuts they are merely collateral damage.

Why is it so hard for the US to make an announcement agreeing to cut production? Baffling....

[Gerry Maddoux + 3,627]

18 minutes ago, James Regan said:

Why is it so hard for the US to make an announcement agreeing to cut production? Baffling....

Because since 1945 the US has had to gag on their own bile and agree to pretty much protect Saudi Arabia from destruction while at the same time pay them pretty much whatever they asked for a barrel of oil. The United States basically groveled for 65 years, importing ten million barrels of oil per day at ghastly prices, watching these morons fly one of their 20 jets, cavorting away to one of their many palaces, always with a hundred-man entourage. Take up the entire Georges V in Paris. Women. Whatever they wanted. 

And then the United States sort of tumbles into this half-assed way of getting oil out of tombstone rock, and lo and behold they become pretty good at it, and then they're producing more oil than Saudi Arabia and the KSA can barely stomach this--they're the ones gagging on their own bile. But back to retracing history . . . 

Over the course of 65 years, the United States of America has made a shitty little tribal bunch of inbred ingrates filthy rich. They've mostly tossed it into the wind. Everyone wants to talk about how the profligate Shale Cowboys have pissed it away . . . . man, that's nothing, not even a drop in the proverbial bucket compared to what these "royal" cousins can do to a billion bucks. 

And now, because of who knows what sort of perverse deal, what sort of crap is known, what sort of corruption, we have to watch these assholes demand the deal, snicker behind their robes, knowingly and dishonestly jack up the numbers. Why the hell do you think it might be hard for the US to make an announcement agreeing to cut production? Yeah, it's pretty damn baffling to me too.

Me? I'd throw the bastards to the wolves--there are plenty of them out there who'd like to tear these guys a new asshole. And before this is over, that's exactly what we'll have to do. Sorry, bud, but I think your friends are calling. Answer, please, while they're still on the line. 

[James Regan + 1,776]

4 minutes ago, Gerry Maddoux said:

Because since 1945 the US has had to gag on their own bile and agree to pretty much protect Saudi Arabia from destruction while at the same time pay them pretty much whatever they asked for a barrel of oil. The United States basically groveled for 65 years, importing ten million barrels of oil per day at ghastly prices, watching these morons fly one of their 20 jets, cavorting away to one of their many palaces, always with a hundred-man entourage. Take up the entire Georges V in Paris. Women. Whatever they wanted. 

And then the United States sort of tumbles into this half-assed way of getting oil out of tombstone rock, and lo and behold they become pretty good at it, and then they're producing more oil than Saudi Arabia and the KSA can barely stomach this--they're the ones gagging on their own bile. But back to retracing history . . . 

Over the course of 65 years, the United States of America has made a shitty little tribal bunch of inbred ingrates filthy rich. They've mostly tossed it into the wind. Everyone wants to talk about how the profligate Shale Cowboys have pissed it away . . . . man, that's nothing, not even a drop in the proverbial bucket compared to what these "royal" cousins can do to a billion bucks. 

And now, because of who knows what sort of perverse deal, what sort of crap is known, what sort of corruption, we have to watch these assholes demand the deal, snicker behind their robes, knowingly and dishonestly jack up the numbers. Why the hell do you think it might be hard for the US to make an announcement agreeing to cut production? Yeah, it's pretty damn baffling to me too.

Me? I'd throw the bastards to the wolves--there are plenty of them out there who'd like to tear these guys a new asshole. And before this is over, that's exactly what we'll have to do. Sorry, bud, but I think your friends are calling. Answer, please, while they're still on the line. 

Gerry- well written I love it when there is no doubt of the message being delivered, I understand where you are coming from. You sure you never worked on rigs?

Its all so fkd up now, I'm just biting the bullet and really have no idea of what will happen, I should be worried about the business but I just have this optimistic little voice in my head saying to me that things will get worked out.

One thing we can take to the bank, we still require the commodity for the next 30 years minimum, something will give.

Thanks for the reply, nicely written.... 

[0R0 + 6,251]

4 hours ago, Jan van Eck said:

5 hours ago, Gerry Maddoux said:

We let this go, let our entire United States petroleum business go, we're looking at hostage prices. 

I think that result can be anticipated.  Will the current Administration place import quotas on offshore oil?  Probably not.  Why should they?  Cheap oil is a local bonanza, it will speed short-term recovery in all sectors - except the oil sector.  The USA is not noted for long-term thinking.  Long term, the offshore producers will own the market.  You can assume they will extract penalty prices. In short, the US will be back to generating wealth, and the oil countries will resume extracting and converting that wealth for themselves. 

I don't think the business is going. Just that it will be on a mid term hiatus. Bankruptcy or pre bankruptcy reorganization and lease renegotiation will help the industry far more than the temporary relief of tariffs or even a substantial cut from OPEC+.

The US will need less Saudi and more LTO to supply the new driving economy. We are doing much less flying and far less public transport going forward. The US is not going to become a substantial net importer again. The Brent grade gulf crude is more expensive since it produces a greater cut of diesel. For the return to the driving economy, it will be more gasoline that we need, thus more LTO. 

What I am wondering is where Saudi has suddenly gotten all this cash to splash around. Someone speculated they had taken a large short position. That would have been prudent. Possibly their short covering provided the underlying bid in the market after the Russian explosion. 

I am still wondering what fields Russia will shut down. 

The US will have an industrial and infrastructure investment boom because

1. the labor is suddenly free to staff it.

2. labor is now looking to move out of "death trap" cities 

3. there is an enormous imperative for business to replace China as a source. First of all for medical materials and equipment, but most everything else has to be regionalized and supply chains must build redundancy. 

Since the Eurozone looks to be unstable with the growing rift between the South and the North, not aided by the German shutdown of exports of medical supplies to Italy and Spain; then the US/NAFTA will be the first target for investment in regional supply chains, ahead of Europe. 

[0R0 + 6,251]

1 hour ago, James Regan said:

Ever since President Trump sent oil prices sky high with a single tweet about the potential OPEC+ production deal, the White House has been quite non-committal in joining along in these supply cuts, even though US shale is a clear target should oil market destruction escalate any further. Particular US companies, such as Pioneer Resources and Parsley have spoken up about 20-30% production cuts, but majors such as Chevron insist it should be left to market forces. Canada, which has already shuttered several oil sands projects as the oil price ticks lower, is now looking at nearly 1.1 million bpd of curtailments in 2Q20, and has expressed interest in joining a global oil market management program.

A usual the devil is in the details and there are still many important questions that remain unanswered. Despite the many unknowns, one thing certain with this deal is that OPEC countries are once again coming to the rescue. - Rystad

Now the fundamentals;s don't really matter, any nuances which had affect on the prices are not required, even the untrained eye can now see quite clearly that you cannot over fill the bath with bathwater without consequences. If KSA and Russia have made their cuts today and the US continues producing with no visible proclamation of making cuts this will not be taken as well. Production cuts by failing oil companies having to shut in cannot be considered conscious production cuts they are merely collateral damage.

Why is it so hard for the US to make an announcement agreeing to cut production? Baffling....

The US is a largely free market system. The production curtailment or management program - i.e. cartel, is not legal in the US, nor should it be made so. That only leaves companies to act as they must in this context. Presumably they  are already drilling far less and will reduce as their cash flow requirements allow. 

[Douglas Buckland + 6,308]

2 hours ago, James Regan said:

Ever since President Trump sent oil prices sky high with a single tweet about the potential OPEC+ production deal, the White House has been quite non-committal in joining along in these supply cuts, even though US shale is a clear target should oil market destruction escalate any further. Particular US companies, such as Pioneer Resources and Parsley have spoken up about 20-30% production cuts, but majors such as Chevron insist it should be left to market forces. Canada, which has already shuttered several oil sands projects as the oil price ticks lower, is now looking at nearly 1.1 million bpd of curtailments in 2Q20, and has expressed interest in joining a global oil market management program.

A usual the devil is in the details and there are still many important questions that remain unanswered. Despite the many unknowns, one thing certain with this deal is that OPEC countries are once again coming to the rescue. - Rystad

Now the fundamentals;s don't really matter, any nuances which had affect on the prices are not required, even the untrained eye can now see quite clearly that you cannot over fill the bath with bathwater without consequences. If KSA and Russia have made their cuts today and the US continues producing with no visible proclamation of making cuts this will not be taken as well. Production cuts by failing oil companies having to shut in cannot be considered conscious production cuts they are merely collateral damage.

Why is it so hard for the US to make an announcement agreeing to cut production? Baffling....

Okay, I see your point, but if the production cuts are not voluntary, but a result of flooding the market by other players (intentional actions taken by other players), then why can’t this involuntary production cut be counted in any production cut by the US? Isn’t the idea to cut production?

I would also ask if any production cut by Russia, Saudi Arabia, or other producers, will be applied to the PRESENT, elevated production rates OR will they be applied to normalized rates of production PRIOR to the commencement of this ‘price war’?

 

[Rasmus Jorgensen + 1,169]

1 hour ago, 0R0 said:

The US is a largely free market system. The production curtailment or management program - i.e. cartel, is not legal in the US, nor should it be made so. That only leaves companies to act as they must in this context. Presumably they  are already drilling far less and will reduce as their cash flow requirements allow. 

This is true. 

It is also true that what KSA and Russia is doing is straigth out of a free market / capitalist playbook. They are defending their market share. Simple as that. 

[Tom Kirkman + 8,860]

6 hours ago, BLA said:

The Saudis must have some dirt on the Donald. 

I think it is the opposite, actually.  Al-Waleed was a black hat who got busted.

[Tom Kirkman + 8,860]

1 hour ago, 0R0 said:

The US will have an industrial and infrastructure investment boom because

1. the labor is suddenly free to staff it.

2. labor is now looking to move out of "death trap" cities 

3. there is an enormous imperative for business to replace China as a source. First of all for medical materials and equipment, but most everything else has to be regionalized and supply chains must build redundancy. 

Since the Eurozone looks to be unstable with the growing rift between the South and the North, not aided by the German shutdown of exports of medical supplies to Italy and Spain; then the US/NAFTA will be the first target for investment in regional supply chains, ahead of Europe. 

I am seriously impressed with your repeated display of critical thinking skills and astute observations in your comments on this forum.

 

[0R0 + 6,251]

16 minutes ago, Tom Kirkman said:

I am seriously impressed with your repeated display of critical thinking skills and astute observations in your comments on this forum.

 

Well. thank you Tom.

I'll print it out and hang it on the fridge. ...

[Douglas Buckland + 6,308]

1 hour ago, Rasmus Jorgensen said:

This is true. 

It is also true that what KSA and Russia is doing is straigth out of a free market / capitalist playbook. They are defending their market share. Simple as that. 

Not quite that simple. You have nations acting as companies working against privately owned corporations. It is not a level playing field.

[James Regan + 1,776]

2 minutes ago, Douglas Buckland said:

Not quite that simple. You have nations acting as companies working against privately owned corporations. It is not a level playing field.

National oil companies still require the heavy use of normally US private companies and Technology, they don't have the savvy to get it oot the groond without Western Manpower, so there is definitely an interest there are far as jobs go many US jobs lost due to these spats, granted nowadays more local savvy guy out there, but theres always a gringo involved or a gringo unit especially offshore, take Sonangol a perfect example, as an oil company the bought those rigs and had to get an International player to manage said rigs. Its not always black and white.

Thousands of Americans and British working for these companies in these countries, once this really gets nationalised such as Brasil the big pinch will be felt.

A world wide cartel would work just fine, principals are fine and well, but won't pay your notes......(On the drip in English)

[Douglas Buckland + 6,308]

1 hour ago, Rasmus Jorgensen said:

This is true. 

It is also true that what KSA and Russia is doing is straigth out of a free market / capitalist playbook. They are defending their market share. Simple as that. 

Okay, let’s ALL protect our market shares, fill up all available storage, drive the price per barrel into cents not dollars, crash the economies of many nations while adhering to the ‘free market/capitalist playbook’!

[Douglas Buckland + 6,308]

9 minutes ago, James Regan said:

National oil companies still require the heavy use of normally US private companies and Technology, they don't have the savvy to get it oot the groond without Western Manpower, so there is definitely an interest there are far as jobs go many US jobs lost due to these spats, granted nowadays more local savvy guy out there, but theres always a gringo involved or a gringo unit especially offshore, take Sonangol a perfect example, as an oil company the bought those rigs and had to get an International player to manage said rigs. Its not always black and white.

Thousands of Americans and British working for these companies in these countries, once this really gets nationalised such as Brasil the big pinch will be felt.

A world wide cartel would work just fine, principals are fine and well, but won't pay your notes......(On the drip in English)

Cartels are inherently unstable as the level of trust required is rarely there.

[Rasmus Jorgensen + 1,169]

6 minutes ago, Douglas Buckland said:

Okay, let’s ALL protect our market shares, fill up all available storage, drive the price per barrel into cents not dollars, crash the economies of many nations while adhering to the ‘free market/capitalist playbook’!

Free market theory suggest that once that happens then a lot of production will disappear and we will find a new balance. 

[Uduak + 22]

9 hours ago, Chris Tarjeft said:

No one wants to sell a barrel of oil for 50% less than they were getting only a few weeks ago.. Price will rebound to median very rapidly and likely full rebound as world gets moving again.  In the short term companies do what they have to in order to survive it.

and every producer is just waiting for that rebound in prices so they can pump more oil to sell at the high prices then the prices will fall again and............

Let's just see how the market forces play out, because this scenario may linger on for a long time. 

[Jan Henrik Larsen 0]

Donald Dumb suggested a 10 PCT cut - he got that - with a smile   You would have been far better of if he did not suggest anything - but instead asked them to match demand right now. Soon a swarm of Saudi tankers will arrive and pull out the oil plug. God save the shale. Yes BLA you are closing in to something ...

Edited April 10, 2020 by Jan Henrik Larsen

[Douglas Buckland + 6,308]

1 hour ago, Rasmus Jorgensen said:

Free market theory suggest that once that happens then a lot of production will disappear and we will find a new balance. 

Production will decrease at whose expense? The poorer nations whose economies are heavily dependent on oil? Is that the correct price to pay to be able to claim that the free market theory works?

[Douglas Buckland + 6,308]

1 hour ago, Jan Henrik Larsen said:

Donald Dumb suggested a 10 PCT cut - he got that - with a smile   You would have been far better of if he did not suggest anything - but instead asked them to match demand right now. Soon a swarm of Saudi tankers will arrive and pull out the oil plug. God save the shale. Yes BLA you are closing in to something ...

And you honestly think that they would have agreed to reduce production to match the falling demand in today’s circumstances? Not a chance.

Furthermore, you seem to think that if Trump asks them to do something, they will. Very naive.