Oil financial war
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It makes sense for Russia to not enter this agreement, I think. The US shale drillers have had the benefits of the cuts that Russia and Saudi Arabia have made these last years as it has kept the prices much higher than otherwise.
The US which boasts of being the biggest oil producer has never made any cuts. Instead Russia is being blamed. Since the last currency attack on Russia, they have gotten rid of the dollar denominated debts from what I gather and much of their trade is now being done using local currencies. So even though the Russian ruble is down about 10% since a week ago, I think they are much better prepared than the West.
It could kill much of the shale industry in the US which from what I have read has been working as a Ponzi scheme and run at a cumulative loss of over $280 billions (from memory).
Here is a little more about the oil market and the shale drillers. It was written just before the opening in the Middle East Monday morning and thus before the 20-30% drop in oil prices, though the author clearly shows to be aware that this could happen.
oilprice.com
Shale In Crisis As Oil Prices Collapse
By Nick Cunningham - Mar 08, 2020, 4:59 PM CDT
It feels 2014 all over again. Or 2008.
The OPEC+ meeting broke up without a deal on Friday, sending oil prices into a freefall. Brent was down by about 9 percent during midday trading, rapidly heading to the low-$40s. Oil prices could test the 2016 lows before all is said and done.
Russia has resisted cutting production deeper. On Thursday, on the eve of the final day of talks, OPEC more or less issued an ultimatum. They proposed 1.5 million barrels per day (mb/d) of additional production cuts, and suggested that OPEC would not cut alone without Russia’s participation. “There will be no deal” without Russia, Iran’s oil minister said.
Moscow called their bluff. On Friday, everyone walked away and there was no deal. As of midday on Friday, WTI plunged to $42 and Brent fell to $46, down 9 percent, the lowest level in nearly three years. The entire OPEC+ arrangement is now in doubt.
Even worse for oil prices, the existing production cuts, agreed to only a few months ago, expires at the end of the month. As it stands, members of the OPEC+ coalition could conceivably raise output beginning in April, exacerbating the global glut.
But Russia’s resistance rested on some reasonable logic. Global demand is contracting by the largest amount in history – a worse demand shock than what occurred even during the global financial crisis.
It’s not clear that this can be fixed by supply cuts. The Russian argument seems to be: a demand-side problem has to be met with a demand-side response – via lower prices. Or, put another way: let the market sort it all out. As a result, oil prices nosedived on Friday.
It may not be the end of the story. OPEC+ members said that consultations will continue, but negotiators need time to cool down, according to Iran’s oil minister.
There are echoes of the 2014 OPEC meeting, when then Saudi oil minister Ali al-Naimi preferred to let the market fix the growing supply/demand imbalance. That led to a steep drop in oil prices, a downturn that did not turn a corner until 18 months later. The plunge in prices ground U.S. shale supply growth to a halt.
This time could be much worse. Not only is the oil market facing a disaster, but this time it’s a demand-led crisis. The global economy is facing real questions about a recession, and the coronavirus continues to spread. The airline industry, for instance, could lose more than $100 billion. The worse may yet lie ahead. In that sense, the analog could be more 2008 than 2016.
“It is the most severe decline since Q4 2008, the height of the 2008-2009 global economic crisis, which saw demand tumble by 2.8 million b/d year-on-year,” Ann-Louise Hittle, vice president, Macro Oils, at Wood Mackenzie, said in a statement. The consultancy sees demand contracting by 2.7 mb/d in the first quarter. “If the impact the coronavirus has had on global oil demand is sustained, then by the second half of the year we’d expect to see weaker GDP. This will have a far greater impact on oil demand than just temporary reductions in jet fuel and gasoline demand.”
For U.S. shale, a disaster lies ahead. The industry has been largely unprofitable to date, but had received several rounds of huge injections of capital in the last decade, most recently following the 2016 downturn. But by last year, investors had begun to sour on unprofitable shale drilling. Energy stocks collapsed and access to capital became increasingly scarce.
That was all true before the coronavirus and before the failed OPEC+ meeting. Now, U.S. shale will likely find itself in a state of true crisis.
Unlike a few years ago, recapitalization in any meaningful way is off the table. Capital markets have turned off the spigot. Also, the twice-a-year credit redetermination period is getting underway, and the most recent slide in prices will likely mean an immediate cut to credit lines from lenders.
Worse, the wave of debt taken out during the 2014-2016 downturn is about to come due. North American oil and gas companies have more than $200 billion in debt maturing over the next four years, with $40 billion due this year.
Peak shale may have finally arrived.
Shale In Crisis As Oil Prices Collapse | OilPrice.com
Oil prices crashed on Friday after OPEC and its partners failed to strike a deal, and U.S. shale could well become the first casualty of the demand-led crisis
oilprice.com
Shale In Crisis As Oil Prices Collapse
By Nick Cunningham - Mar 08, 2020, 4:59 PM CDT
It feels 2014 all over again. Or 2008.
The OPEC+ meeting broke up without a deal on Friday, sending oil prices into a freefall. Brent was down by about 9 percent during midday trading, rapidly heading to the low-$40s. Oil prices could test the 2016 lows before all is said and done.
Russia has resisted cutting production deeper. On Thursday, on the eve of the final day of talks, OPEC more or less issued an ultimatum. They proposed 1.5 million barrels per day (mb/d) of additional production cuts, and suggested that OPEC would not cut alone without Russia’s participation. “There will be no deal” without Russia, Iran’s oil minister said.
Moscow called their bluff. On Friday, everyone walked away and there was no deal. As of midday on Friday, WTI plunged to $42 and Brent fell to $46, down 9 percent, the lowest level in nearly three years. The entire OPEC+ arrangement is now in doubt.
Even worse for oil prices, the existing production cuts, agreed to only a few months ago, expires at the end of the month. As it stands, members of the OPEC+ coalition could conceivably raise output beginning in April, exacerbating the global glut.
But Russia’s resistance rested on some reasonable logic. Global demand is contracting by the largest amount in history – a worse demand shock than what occurred even during the global financial crisis.
It’s not clear that this can be fixed by supply cuts. The Russian argument seems to be: a demand-side problem has to be met with a demand-side response – via lower prices. Or, put another way: let the market sort it all out. As a result, oil prices nosedived on Friday.
It may not be the end of the story. OPEC+ members said that consultations will continue, but negotiators need time to cool down, according to Iran’s oil minister.
There are echoes of the 2014 OPEC meeting, when then Saudi oil minister Ali al-Naimi preferred to let the market fix the growing supply/demand imbalance. That led to a steep drop in oil prices, a downturn that did not turn a corner until 18 months later. The plunge in prices ground U.S. shale supply growth to a halt.
This time could be much worse. Not only is the oil market facing a disaster, but this time it’s a demand-led crisis. The global economy is facing real questions about a recession, and the coronavirus continues to spread. The airline industry, for instance, could lose more than $100 billion. The worse may yet lie ahead. In that sense, the analog could be more 2008 than 2016.
“It is the most severe decline since Q4 2008, the height of the 2008-2009 global economic crisis, which saw demand tumble by 2.8 million b/d year-on-year,” Ann-Louise Hittle, vice president, Macro Oils, at Wood Mackenzie, said in a statement. The consultancy sees demand contracting by 2.7 mb/d in the first quarter. “If the impact the coronavirus has had on global oil demand is sustained, then by the second half of the year we’d expect to see weaker GDP. This will have a far greater impact on oil demand than just temporary reductions in jet fuel and gasoline demand.”
For U.S. shale, a disaster lies ahead. The industry has been largely unprofitable to date, but had received several rounds of huge injections of capital in the last decade, most recently following the 2016 downturn. But by last year, investors had begun to sour on unprofitable shale drilling. Energy stocks collapsed and access to capital became increasingly scarce.
That was all true before the coronavirus and before the failed OPEC+ meeting. Now, U.S. shale will likely find itself in a state of true crisis.
Unlike a few years ago, recapitalization in any meaningful way is off the table. Capital markets have turned off the spigot. Also, the twice-a-year credit redetermination period is getting underway, and the most recent slide in prices will likely mean an immediate cut to credit lines from lenders.
Worse, the wave of debt taken out during the 2014-2016 downturn is about to come due. North American oil and gas companies have more than $200 billion in debt maturing over the next four years, with $40 billion due this year.
Peak shale may have finally arrived.
Russia has come out despite it being a holiday today in Russia and said that they are ready for lower prices and that their wealth fond will be able to sustain Russia if prices would stay around $ 25-30 for the next 6-10 years! I noticed in a twitter post that oil accounts for 35% of Russia's budget revenues, whereas it accounts for 87% of Saudi Arabia's budget income.
www.rt.com
Russia swiftly reacts to bloodbath in markets, says it’s ready for $25 oil
Russia’s sovereign wealth fund has enough reserves to cover budget deficit for years, even if oil prices stay between $25 and $30 per barrel, the Finance Ministry announced amid a dramatic oil market crash.
Things did not go well as expected for the shale drillers in the US yesterday as they are very exposed to low oil prices.
oilprice.com
[...]
For the U.S. oil industry, this is a historic crisis. It has the ingredients to be far worse than the 2008 financial meltdown. At that time, a sharp contraction in the global economy blew a hole in the market. But OPEC responded by cutting production.This time, that same potential for an economic calamity is present, but there is an oil price war occurring simultaneously.
https://twitter.com/IEABirol/status/1236949531117465600
A decade ago, the shale industry barely existed, and falling oil prices cushioned the blow to the U.S. economy by making energy cheaper. Today, an oil market bust could pretty quickly plunge Texas, North Dakota and Appalachia, among other places, into a recession.
Analysts are now predicting that the Eurozone, at a minimum, is heading for an economic recession. France’s finance minister Bruno Le Maire said that Europe needs a “call to arms” to defend the economy.
The pain for U.S. drillers was immediately visible when markets opened on Monday. Deep losses hit everyone. “We have taken the unprecedented steps of bringing our full coverage group to Hold or Sell,” Neal Dingmann of SunTrust said, according to Bloomberg. He called it “energy Armageddon.”
“Not one company in our coverage can keep production flat for more than a few months while spending within cash flow at $35 WTI,” Charles Meade of Johnson Rice & Co. said, according to Bloomberg.
Shale drillers were already facing substantial hurdles with cash flow problems and maturing debt. “We are preparing for two years of low prices and will make the necessary adjustments to maintain our great balance sheet,” Pioneer Natural Resources’ CEO Scott Sheffield told the Washington Post. Pioneer’s share price cratered by 32 percent on Monday.
“There will be many bankruptcies in our industries and tens of thousands of layoffs over the next 12 months,” Sheffield added.
Shale stocks tanked on Monday, with big names in shale such as EOG Resources, Whiting, Continental Resources and Apache all down over 30%. But one of the biggest losers was Occidental Petroleum, which has seen its market capitalization shrink to $15 billion. It paid $38 billion for Anadarko, and shares are off roughly 73% since that deal.
Oil Price Crash: 50% Of U.S. Shale Could Go Bankrupt | OilPrice.com
Global demand fears and a new supply crisis have triggered the sharpest decline in oil prices in decades and U.S. shale drillers could become the first victim
oilprice.com
[...]
For the U.S. oil industry, this is a historic crisis. It has the ingredients to be far worse than the 2008 financial meltdown. At that time, a sharp contraction in the global economy blew a hole in the market. But OPEC responded by cutting production.This time, that same potential for an economic calamity is present, but there is an oil price war occurring simultaneously.
https://twitter.com/IEABirol/status/1236949531117465600
A decade ago, the shale industry barely existed, and falling oil prices cushioned the blow to the U.S. economy by making energy cheaper. Today, an oil market bust could pretty quickly plunge Texas, North Dakota and Appalachia, among other places, into a recession.
Analysts are now predicting that the Eurozone, at a minimum, is heading for an economic recession. France’s finance minister Bruno Le Maire said that Europe needs a “call to arms” to defend the economy.
The pain for U.S. drillers was immediately visible when markets opened on Monday. Deep losses hit everyone. “We have taken the unprecedented steps of bringing our full coverage group to Hold or Sell,” Neal Dingmann of SunTrust said, according to Bloomberg. He called it “energy Armageddon.”
“Not one company in our coverage can keep production flat for more than a few months while spending within cash flow at $35 WTI,” Charles Meade of Johnson Rice & Co. said, according to Bloomberg.
On Monday, Diamondback Energy said that it would “immediately” slash capex and cut back on completion crews and rigs.
Shale drillers were already facing substantial hurdles with cash flow problems and maturing debt. “We are preparing for two years of low prices and will make the necessary adjustments to maintain our great balance sheet,” Pioneer Natural Resources’ CEO Scott Sheffield told the Washington Post. Pioneer’s share price cratered by 32 percent on Monday.
“There will be many bankruptcies in our industries and tens of thousands of layoffs over the next 12 months,” Sheffield added.
Shale stocks tanked on Monday, with big names in shale such as EOG Resources, Whiting, Continental Resources and Apache all down over 30%. But one of the biggest losers was Occidental Petroleum, which has seen its market capitalization shrink to $15 billion. It paid $38 billion for Anadarko, and shares are off roughly 73% since that deal.
RT interviewed "Veteran stock broker" Peter Schiff who had an interesting take on the oil price drop, he thinks that the price will bounce back: "once the dollar starts to collapse, all these prices are going to rise including the price of oil." In the process, however, many companies are going to go bankrupt.
Notably he also says that this is also a sign of the deflating dollar but unlike in the 2008 crash when money fled to the dollar as a safe haven, the situation now is that people are divesting themselves of the dollar so it won't have that buffer.
He wonders whether the Fed will attempt to bail out all the even bigger too big to fail banks and some of the energy companies but he claims they don't have the ability to do so.
Well, i guess we'll have to wait and see, because few thought the economic situation could go on for as long as it has. Although clearly this oil price thing is notable.
The full article is below and is taken from an interview with him on RT America:
Notably he also says that this is also a sign of the deflating dollar but unlike in the 2008 crash when money fled to the dollar as a safe haven, the situation now is that people are divesting themselves of the dollar so it won't have that buffer.
He wonders whether the Fed will attempt to bail out all the even bigger too big to fail banks and some of the energy companies but he claims they don't have the ability to do so.
Well, i guess we'll have to wait and see, because few thought the economic situation could go on for as long as it has. Although clearly this oil price thing is notable.
The full article is below and is taken from an interview with him on RT America:
Forget the oil prices, the whole US dollar bubble is deflating - Veteran stock broker Peter Schiff -- Sott.net
The drop in oil prices is likely to be short-lived, veteran stock broker Peter Schiff told RT, since the deflation of the whole US debt bubble and crash of the dollar will make the prices of oil and other commodities bounce up. Decline in demand...www.sott.net
The drop in oil prices is likely to be short-lived, veteran stock broker Peter Schiff told RT, since the deflation of the whole US debt bubble and crash of the dollar will make the prices of oil and other commodities bounce up.
Decline in demand for oil due to the coronavirus epidemic, further reinforced by the demise of the OPEC+ production cuts agreement, has crashed the US and world markets, sending traders into a panic-selling mode. The ongoing market turmoil will certainly hit the oil industry heavily, but the impact is likely to reach far beyond it, CEO and chief global strategist at Euro Pacific Capital Peter Schiff believes.
"A lot of the heavily indebted energy companies are clearly going to go bankrupt and so, ultimately, those that survive will be in a position to make even more money as the price of oil re-bounce, which I do expect to happen," Schiff told RT, adding that well capitalized oil companies will survive the crisis and ultimately benefit from it, once the prices start to pick up.
US shale industry is bound to crash
The US shale oil industry is likely to be hit the worst, given its extremely high costs of production and maintenance.
"Really, 50-60 dollars a barrel is kind of a minimum for a lot of these guys to survive. We didn't even have that before and now we are in the low 30s, so this is going to cause a lot of devastation," Schiff said.
Falling oil prices may make gas at the pump cheaper in the short term, but consumers should not get too excited about it, since the upcoming economic recession will swiftly negate this effect, he warned.
"People will get the benefit of having some cheaper gas prices, but don't get used to it as it won't last. People shouldn't go out and buy a big SUV because they think the gasoline prices will stay down forever."
"A lot of Americans maybe think it's good that they not going to pay as much for gas - but a lot of them are about to lose their jobs, so they will not going to need to drive to work anyway. So, the savings won't be as big."
Dollar debt bubble is bursting
On the larger scale, plummeting oil prices are "part of the deflationary process" affecting the whole US dollar bubble, Schiff believes. Enormous amounts of debt have piled up across every sector of the US economy.
"The real problem in the US economy is all the debt. We have so much debt, not just in oil companies but in all sorts of companies and everybody is missing this," Schiff said.
Unlike during the 2008 financial crisis, the US is unlikely to be able to re-inflate the dollar, as it simply doesn't "have enough bullets in their gun to reflate a larger bubble" and now is bound to "deal with a full aftermath of this coming crisis."
"In 2008 the dollar went up because everybody was buying it. This time, the dollar is going to tank, because everybody is selling it," Schiff told RT. "And this commodity bear market, including what's happening in oil, is going to be very short-lived. Because once the dollar starts to collapse, all these prices are going to rise including the price of oil."
The US government might try to bail out its oil industry, since its collapse might trigger a chain reaction that could force Washington to rush and save other sectors of its economy as well.
"I'm wondering if the US government is going to try and bail out the oil industry. I hope they don't, but they may. They may bail out a lot of other industries too, like they bailed out the banks in 2008," Schiff said. "But they may have to bail out the banks again - if you look at the banks today, all the banks that they claimed are too big to fail in 2008 are a lot bigger now, and I think they will all going to fail again."
The Keiser Report (final episode from LA) yesterday discusses shale gas (that ponzi scheme), oil, the House of Saudi and MbS's 5,000 members of the family to feed, Russia (the Red Queen) - global positioning of economies of course, the virus (the trigger) and the petrodollar's death spiral(?). 'Cascading bankruptcies' will not be avoided...
They discuss (Mitch Feierstein/Keiser) the 'bag of tricks' - what can be pulled out.
The Bond market
The Repro market ⬆ with
and going
The end of the petrodollar system? (E1514)
www.rt.com
They discuss (Mitch Feierstein/Keiser) the 'bag of tricks' - what can be pulled out.
The Bond market
The Repro market ⬆ with
and goingThe end of the petrodollar system? (E1514)
The end of the petrodollar system? (E1514)
In this final episode of the Keiser Report from Los Angeles, Max and Stacy discuss the comment made by Roy Sebag of GoldMoney
Bosphorus1982
Jedi
Imo, that disagreement apparently created by Saudi Arabia, is actually designed by the United States. As, with the Khashoggi murder, Saudis are now in America's hands, they can make them do anything, in order to make Russia fall to their knees.