The Lemon Fool

This will be hurting Iran big time......is war in the offing?

TheMotorcycleBoy wrote:Let me get this right - the Saudis cut prices, because the Russia wouldn't agree to cut production?

I guess they (Saudis) reckon they Russkis will be scared of going broke first, and hence we come back to the table and agree to reduce production.

Matt

Correct. And in the meantime they both know that the US shalers will get hammered, the Iranians will get hammered, the Argentine shale will get forgotten forever, the Chavez regime will get hammered, the Chinese will get a helping hand, and non-ROPEC marginal oil projects' investment risk premiums will go up. What's not to like ?

regards, dspp

dspp wrote:

TheMotorcycleBoy wrote:Let me get this right - the Saudis cut prices, because the Russia wouldn't agree to cut production?

I guess they (Saudis) reckon they Russkis will be scared of going broke first, and hence we come back to the table and agree to reduce production.

Matt

Correct. And in the meantime they both know that the US shalers will get hammered, the Iranians will get hammered, the Argentine shale will get forgotten forever, the Chavez regime will get hammered, the Chinese will get a helping hand, and non-ROPEC marginal oil projects' investment risk premiums will go up. What's not to like ?

regards, dspp

I know that's pretty much how the story broke. However I would not rule out that Saudi Arabia and Russia are actually pursuing an agreed path (between them).

Good article to read with some opinions on the oil price.

https://seekingalpha.com/article/433076 ... -scenarios

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"U.S. benchmark crude fell to its lowest since 2002 to settle at $20.37 a barrel on Wednesday, and is down more than 60 percent since the start of the year. [O/R] Both U.S. and Brent prices have fallen by more than 50% in the last 10 trading days, following the most pronounced demand destruction since the financial and economic crisis of 2008.

As storage reaches capacity, a slide toward $10 per barrel is possible, according to some investors and analysts. That last happened during the 1998 glut before both oil companies and oil producing nations curbed supply.

Some Canadian crude is already trading not far off $10 per barrel because of steep price discounts to U.S. benchmark WTI crude."

https://www.reuters.com/article/us-heal ... SKBN2152WK

Back when I was an OIM in 1999 or so (and not in the UK) I recall laying off approximately 1/3 of our workforce. I rather suspect that this time it will not be affecting just the oil & gas sector,

https://www.theguardian.com/business/20 ... mic-crisis

"The North Sea oil and gas industry is in a “paper-thin” position as global oil markets plummet towards 18-year lows amid the UK’s economic emergency, according to a report.

An industry trade body said investment in the ageing oil basin, which supports about 250,000 jobs in the UK, was expected to slump by almost a third because of the market collapse."

- dspp

ReallyVeryFoolish wrote:No wonder then, that where I work probably 1/3rd of the workforce has a Scottish accent.

Are you a member of the Scottish cricket team?

Aberdeen as you say had not recovered from 2014 but there are a few projects starting to be looked at. I have been looking at some projects for a few clients.

With the oil price where it has got to now and I remember when working at Occidental around 1986 1987. A buyer had a tanker at Flotta ready to load crude and had tried to bid Oxy down to around 7 dollars a barrel. The large storage tanks were getting full at the Terminal.

Oxy Management decided to stop production from Piper and Claymore. I'm not sure if production was stopped or the buyer need to fill their tanker but if my memory serves the price was agreed around $9 a barrel and the tanker was filled.

That price of $7 a barrel would be say around $14 today, not far off what's being talked about in the oil press today.

ReallyVeryFoolish wrote:

StepOne wrote:

ReallyVeryFoolish wrote:No wonder then, that where I work probably 1/3rd of the workforce has a Scottish accent.

Are you a member of the Scottish cricket team?

Afraid not, I am English.

That's no barrier - we'll take anyone

https://www.reuters.com/article/us-oil- ... SKBN21E13T


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https://oilprice.com/Energy/Crude-Oil/I ... s-Oil.html

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"In normal times, it usually takes an average of 4-5 months for lower prices to filter through into a reduction in new drilling and 9-12 months to feed through into a decline in output.

But the current adjustment is likely to be much faster as the industry struggles to cope with the largest economic and price shock since the Great Depression of the 1930s.

Production warfare between Saudi Arabia and Russia, compounded by the enforced shut down of much of the business and transport system as a result of coronavirus, has created an enormous oversupply."

https://www.reuters.com/article/us-usa- ... SKBN21J61L

I struggle to understand why the media insist on characterising this as a production war between KSA and RU, and for once I think John Kemp is letting his readers down. In reality it is a three-way conflict between KSA-RU-USA with plenty of minor players also getting shot up. Also the many comments that KSA are playing a poor strategic game seem wide of the mark to me. USA is saying "please take your foot off our windpipe in these difficult times". KSA fully understands that you crush an opponent when they are at their weakest, you don't let them get off the floor and prepare for the next time.

The only way out of this that results in a continued role for US fraccers, is via a ROPEC+USA cartel to form. That is unlikely to be stable if it is merely founded on tacit collusion by the USA. Whether that could form at all is another matter, I tend to think not. And renewables aren't stopping in their wedging their way into the demand equation.

regards, dspp

https://www.iea.org/articles/the-global ... ts-history

Not a good time to be a citizen of a poor or middle-income-trap oil-economy country.

regards, dspp

President Vladimir Putin said on Friday Russia was ready for deep oil production cuts with the United States and OPEC, but firmly put the blame for the collapse in oil prices on OPEC’s de facto leader Saudi Arabia.

Putin, speaking in a televised video conference with Russian government officials and domestic oil producers, proposed to cut combined oil production by around 10 million barrels per day, or around 10% of global output...............


https://www.middleeastmonitor.com/20200 ... ow-prices/

Putin, speaking in a televised video conference with Russian government officials and domestic oil producers, proposed to cut combined oil production by around 10 million barrels per day, or around 10% of global output...............

yes, but his minions in the form of Russian oilcos will be very reluctant to shut in wells which, in places like W.Siberia are difficult and expensive, if not impossible to restart.

I think that he basically hopes the Saudis will, as previously, bear the brunt of the cuts while Russia reaps the rewards of higher prices.

S

spasmodicus wrote:

Putin, speaking in a televised video conference with Russian government officials and domestic oil producers, proposed to cut combined oil production by around 10 million barrels per day, or around 10% of global output...............

yes, but his minions in the form of Russian oilcos will be very reluctant to shut in wells which, in places like W.Siberia are difficult and expensive, if not impossible to restart.

I think that he basically hopes the Saudis will, as previously, bear the brunt of the cuts while Russia reaps the rewards of higher prices.

S

And he thinks that by insulting MBS in KSA he will get his preferred outcome more easily.

Hmmmm.......

regards, dspp

dspp wrote:

spasmodicus wrote:

Putin, speaking in a televised video conference with Russian government officials and domestic oil producers, proposed to cut combined oil production by around 10 million barrels per day, or around 10% of global output...............

yes, but his minions in the form of Russian oilcos will be very reluctant to shut in wells which, in places like W.Siberia are difficult and expensive, if not impossible to restart.

I think that he basically hopes the Saudis will, as previously, bear the brunt of the cuts while Russia reaps the rewards of higher prices.

S

And he thinks that by insulting MBS in KSA he will get his preferred outcome more easily.

Hmmmm.......

regards, dspp

Isn't there more geopolitical complexity here though? I.e. Russia helps Iran who help the Houthis, who attack Aramco assets.

I'm not any kind of oil politics expert, but that's one of the areas my mind travels to.

And I guess Iran thinks it's great, because America doesn't.

Excellent JohnKempReuters graphset

https://fingfx.thomsonreuters.com/gfx/c ... %20WAR.pdf

- dspp

Excellent JohnKempReuters graphset

but it only goes to beginning of April 2020......

Isn't there more geopolitical complexity here though? i.e. Russia helps Iran who help the Houthis, who attack Aramco assets.

As to the question of who blinks first, ability to survive financially doesn't seem to be a problem, at least in the short term. back of envelope order-of-magnitude calculation (rubbish probably). At $30/bbl OP

Russia reserve fund is around $125bn and their budget is said to break even at $45/bbl. Production 10.8mmbbl/day (2019)
deficit $10.8*(45-30) million a day. time to burn through reserves 771 days

KSA sovereign wealth fund is around $320bn and their budget is said to break even at $85/bbl. Production 12mmbbl/day
deficit $12x(85-30) million a day. At $30/bbl OP, time to burn through reserves 484 days.

So Russia has it, but of course these figs don't really reflect their ability to stay afloat, as it were, but indicates that both may last out for months or years rather than weeks. If it comes to the ability of their respective populations to suffer enforced privation without the country falling apart, then Russia has a much better track record on this as KSA.

S

The US isn't liking it.
https://www.cnbc.com/2020/04/01/the-oth ... er-11.html