Daily Briefing: SAUDI ARABIA AND RUSSIA FIGHT OVER OIL PRICES (March 16,2020)

Brazil – The first 100% Brazilian oil platform, the P-51 will produce about 180 thousand barrels of oil and 6 million cubic meters of gas per day when operating at full load. (Source:Wikipedia)

TABLE OF CONTENTS:

Crude Tactics: Russia and Saudi Arabia Are at War Over Oil Prices:  John R. Bradley, The Spectator, Mar. 14, 2020


Behind the Russia-Saudi Breakup, Calculations and Miscalculations Andrew Higgins and Andrew E. Kramer, NYTimes, Mar. 10, 2020


Inside Saudi Arabia’s Decision to Launch an Oil-Price War:  Summer Said and Benoit Faucon, WSJ, Mar. 13, 2020


Russia’s Big Bet Against U.S. Oil Is Very High Risk: RFE/RL StaffOilPrice.com, Mar. 12, 2020

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Crude Tactics: Russia and Saudi Arabia Are at War Over Oil Prices
John R. Bradley
The Spectator, Mar. 14, 2020

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.

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. … [To read the full article, click the following LINK – Ed.]
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Behind the Russia-Saudi Breakup, Calculations and Miscalculations
Andrew Higgins and Andrew E. Kramer
NYTimes, Mar. 10, 2020

It was always a marriage of convenience, whatever the pledges of devotion, but when Russia and Saudi Arabia parted ways late last week after a dispute over oil production, it was like a lot of breakups: instantly acrimonious.

Gone, it seems, are the days when two of the world’s strongest-willed leaders, Vladimir V. Putin and Crown Prince Mohammed bin Salman, engaged in an unlikely courtship to prop up oil prices and extend their influence. Only six months ago, the Saudi energy minister called it an “until death do us part” union.

With oil prices plunging and Russian state television blaming Saudi Arabia for the collapse of the ruble, the kingdom on Tuesday signaled what seemed to be an escalation.

Saudi Aramco, the national oil company, said that on April 1 it would start providing customers with 12.3 million barrels a day. That is a 26 percent increase on its output before the deal with Russia collapsed. And taking dead aim at Moscow, the kingdom offered steep discounts for April deliveries to customers in Europe, a direct strike against one of Russia’s primary markets. Amid the tumult, it was unclear which country might emerge the winner of the dispute in the long run, though both have so far been damaged by the price fall.

But the breakup was a clear victory for one close ally of Mr. Putin’s, Igor I. Sechin, the head of Russia’s biggest oil company, Rosneft. It was also a coup for nationalist-minded Russian economists intent on punishing the United States, no matter what the cost to Russia. Mr. Sechin, who has worked alongside Mr. Putin since the 1990s, when they served together as midlevel officials in St. Petersburg, has been lobbying for years against production cuts proposed by the Saudis. The cuts are aimed at putting a floor under oil prices, but Mr. Sechin argued that efforts to keep oil prices high by limiting output only spurred shale oil production in the United States. This, he said on Sunday, was “pointless.”

He has been supported in this long and, until last week, fruitless campaign by economic nationalists in Russia. They were aghast at an arrangement with the Saudis that they saw as mainly helping the United States, where natural gas and oil extracted from shale has undercut Gazprom, Russia’s state-control energy giant, and also Rosneft, the two pillars of Russia’s state sector. … [To read the full article, click the following LINK – Ed.]
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Inside Saudi Arabia’s Decision to Launch an Oil-Price War
Summer Said and Benoit Faucon
WSJ, Mar. 13, 2020

Saudi Arabia and Russia intensified an escalating oil-market war on Tuesday, with Riyadh set to raise output to record levels and Moscow saying it was ready to pump more crude. State-run Saudi Arabian Oil Co. said it would boost production to 12.3 million barrels a day in April, some 300,000 barrels a day over the company’s previous maximum sustained capacity. Russian Energy Minister Alexander Novak, meanwhile, said his country could rapidly open its own taps.

Oil prices lost a fifth of their value Monday, after Saudi Arabia over the weekend slashed its crude prices and signaled it would boost its output next month. The move followed Russia’s rejection of a Saudi-backed plan by the Organization of the Petroleum Exporting Countries to cut crude output in response to dwindling demand in China and elsewhere.

Even as the price war escalated with fresh salvos from both sides, former Saudi energy minister Khalid al-Falih was in talks with Mr. Novak in an attempt to reverse the production hikes and revive the collective OPEC-Russia output curbs, according to Saudi government advisers and officials.

Canada Vows Response to Crude-Oil Blow

Mr. Falih, who negotiated the initial production cuts in 2016, is now Saudi Arabia’s minister of investments. His outreach to Mr. Novak is done with the approval of Saudi authorities, the advisers said. If Mr. Falih’s mediation succeeds, the advisers and officials said, OPEC and its allies including Russia will convene an emergency meeting in April.

Mr. Novak said Moscow isn’t ruling out further cooperation with OPEC, adding that the next scheduled meeting is planned for May or June. “The doors are not closed,” he said.

Amid the escalating fight, President Trump called Saudi Crown Prince Mohammad bin Salman on Monday to discuss global energy markets, the White House said Tuesday morning. The leaders also discussed “other critical regional and bilateral issues,” according to a statement.

Saudi Arabia and Russia’s decisions to flood markets are surprising, as China—the world’s largest oil importer—has been hobbled by the deadly coronavirus, which has hurt its demand for oil after refineries and factories were forced to shut.

Saudi Arabia’s struggle for oil-market supremacy might earn it a sliver of market share at the expense of Russia and rival U.S. shale producers, but the cost of a price war might be too much for the kingdom to bear, analysts and oil officials say.

The combination of declining global consumption and rising supply pushed Brent crude, the benchmark for global prices, to its sharpest decline since the first Gulf War in 1991 on Monday. Some of these losses were recouped Tuesday as the Brent oil price gained 8% amid a broader revival in markets. … [To read the full article, click the following LINK – Ed.]
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Russia’s Big Bet Against U.S. Oil Is Very High Risk
RFE/RL staff
OilPrice.com, Mar. 12, 2020

For years now, Russia has been laser-focused on insulating itself from an external economic shock. It may have just sparked one.

In an unexpected move on March 6, Russia rejected a call by OPEC countries to further cut oil production in order to help prop up prices amid sagging global demand for energy due to the coronavirus.

The decision broke three years of cooperation under an arrangement called OPEC+ and stunned participants at a meeting in Vienna, not to mention some of Russia’s own oil executives — one suggested the move was “irrational” — and governments from the Middle East to the West.

OPEC leader Saudi Arabia swiftly responded to the snub by announcing it is no longer obliged to hold back production, causing the largest single-day drop in the price of oil in nearly three decades and sending global stock markets and the ruble tumbling. Why?

One potential answer: President Vladimir Putin wanted to punish the United States by putting severe pressure on the U.S. shale-oil industry, which has sold millions of barrels of oil while Russian companies kept production down under the existing OPEC+ agreement. “The Kremlin had decided that propping up prices as the coronavirus ravaged energy demand would be a gift to the U.S. shale industry,” Bloomberg News reported. The acerbic spokesman for Russian state oil giant Rosneft, Mikhail Leontyev, suggested that was at least one of the motives, telling the agency: “Let’s see how American shale exploration feels under these conditions.”

Rosneft CEO Igor Sechin, an old and close Putin ally, has long been said to be chafing under the existing OPEC+ production limits, and was widely seen as playing a role in the decision to reject further cuts.

Some analysts played down the idea that the Kremlin was out to get U.S. shale, however, saying that Russia’s coordination with OPEC+ was fragile to begin with and that Moscow and Riyadh had different views of the current volatility on the global oil market. Whatever the reasons, it’s a risky move for Moscow at an uncertain time.

The oil price collapse stoked by Moscow’s move and concerns about the effects of the coronavirus on a slew of industries will hurt Russia’s economy in the short-term, and there is no guarantee that it can knock out U.S. shale in the long run, analysts said.

U.S. Benefits

The United States has been a beneficiary of the high prices maintained by the OPEC+ output cuts over the past few years, overtaking Saudi Arabia and Russia — now Number 3 — as the world’s largest oil producer.
As the coronavirus ravaged the Chinese economy and hit others around the world, slashing oil demand, Saudi Arabia lobbied for OPEC+ to cut another 1.5 million barrels at the March 6 meeting in Vienna. Russia recommended maintaining the existing cuts. OPEC+ — a 24-member group consisting of OPEC nations plus non-cartel members like Russia — first agreed to oil production cuts in 2017 … [To read the full article, click the following LINK – Ed.]
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For Further Reference:

The Reason Why Russia Refused to Cut Oil Production:  Irina Slav, OilPrice.com, Mar. 12, 2020 — OPEC asked Russia to cut an additional 300,000 bpd in oil production at last week’s meeting in Vienna, but according to Russia’s Deputy Energy Minister, this would’ve been ‘technically challenging’

Saudi Arabia and Russia Feud over Coronavirus Oil Response: Will Everyone Lose? David A. Wemer, Atlantic Council, Mar. 9, 2020 — Global oil prices crashed early on March 9 after a dramatic rift opened between two of the world’s most important oil producers over how to respond to the potential effects of the coronavirus outbreak.

Sanders Pushes Biden to Go Farther, This Time on Fracking Joshua Jamerson, WSJ, Mar. 15, 2020  Joe Biden and Bernie Sanders have been debating all night about their differences in how far to go in curbing all sorts of issues.

Israel to Build 2 Natural Gas Power Units Amid Plan to End Coal Usage:  Energy World, Jan. 8, 2020 –A government panel approved an Israeli Energy Ministry proposal to build two power units to be operated solely with natural gas as part of a plan to eliminate coal usage by 2025 and improve air quality, the ministry said on Tuesday.

Opinion – Pipelines and Politics: Natural Gas Connects Israel and Egypt:  Roie Yellinek, E-International Relations, Mar. 4, 2020 — On Jan. 15, 2020, the Egyptian minister of petroleum, electricity, and renewable energy, Tarek el-Molla, and his Israeli counterpart, Yuval Steinitz, announced the start of Israeli natural gas exports to Egypt, supplied by Israel’s largest subsea gas field, Leviathan.