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Do Saudi Arabia And Russia Really Want To Kill U.S. Shale – OilPrice.com

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Do Saudi Arabia And Russia Really Want To Kill U.S. Shale? | OilPrice.com

Yale Global

YaleGlobal Online is a publication of the Whitney and Betty MacMillan Center for International and Area Studies at Yale. The magazine explores the implications of…

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    Since 2016, as an informal leader of the 13-strong non-OPEC group, Russia has been instrumental in the pricing of oil as Saudi Arabia, leading producer in the Organization of Petroleum Exporting Countries. Now, both find themselves at odds as to how to respond to the global economic crisis caused by the fall in petroleum demand resulting from the COVID-19 outbreak. The Saudis insisted on overall cuts to be shared by OPEC and non-OPEC with a 2:1 ratio. Russia saw no need for any cuts because, in its view, earlier OPEC and non-OPEC curtailments had allowed the US shale oil industry to fill the gap. With the sharp fall in oil prices, many small-scale shale oil drillers in the United States will go bankrupt as happened in late 2015 when the Saudis flooded the market with cheap oil. Starting in 2014, aided by high oil prices and technical advances, shale oil drillers boosted US crude oil production, accounting for a third of the onshore output. This raised US oil production from 5.7 million barrels per day in 2011 to a record 17.94 million bpd in 2018, outstripping Russia and Saudi Arabia – transforming the United States into an oil-exporting country after President Barack Obama lifted the 40-year-old crude-oil export ban in December 2015, following a congressional vote to that effect.

    Frenzy: Russia refused to go along with a Saudi plan to reduce oil productions, both nations opened taps and prices soared (Source: Oil and Gas 360, Bloomberg)

    By banding together such non-OPEC oil producers as Azerbaijan, Bahrain and Bolivia as well as Kazakhstan and Mexico, Russia broke new ground and sealed its leadership role in December 2016 when OPEC and non-OPEC groups agreed to production cuts to remove a global oil glut rising rapidly since early 2016.

    King Salman bin Abdulaziz, after his enthronement in January 2015, decided to thaw relations with the Kremlin. He sent his favorite son, Mohammad, 29, deputy premier and defense minister, along with his foreign and oil ministers to Russia’s International Economic Forum in St. Petersburg in June. During his meeting with Russian President Vladimir Putin, Prince Mohammad bin Salman discussed Saudi investments in Russia, then under US and European Union economic sanctions. After the Kremlin’s September military intervention in the Syrian Civil War siding with President Bashar al Assad, the prince rushed to Sochi for a meeting with Putin and reassurance that Russia was not planning to forge a military alliance with Iran.

    Related: How Chevron Could Win Big On “The Worst Oil Deal Ever”
    The return of Iran to the oil market in January 2016, following its denuclearization deal with major powers, and US entry into the oil-export market created a glut. Prices plummeted to $27 a barrel from the peak of $115 in mid-2014, before stabilizing around $50 a barrel. That led Prince Salman and Putin to meet on the sidelines of the G20 summit in Hangzhou, China, on 5 September and agree to cooperate in world oil markets by limiting output, clearing the global glut and raising prices.

    As a result OPEC and non-OPEC groups agreed to their first joint oil output cut in December 2016: OPEC’s share was 1.2 million bpd and non-OPEC’s 558,000 bpd. By slashing 500,000 bpd, Saudi Arabia reduced production by 4.5 percent from 10.56 million bpd, and Russia curtailed its output by 300,000 bpd. Immediately, the Brent crude price jumped 10 percent to nearly $52 a barrel, and US West Texas Intermediate, crude, WTI, rose 9 percent to $49.50.

    The launching of a mutually beneficial strategy in oil exports prepared the ground for widening Riyadh-Moscow links. King Salman became the first reigning Saudi monarch to visit Moscow in October 2017. The two sides inked 15 cooperation agreements covering oil, military affairs, including a $3 billion arms deal and even space exploration. Putin offered to sell versatile S-400 anti-aircraft missiles to the monarch who demurred. Coinciding with the royal visit, the Council of Saudi Chambers organized a networking meeting in Moscow for Saudi and Russian business leaders. As newly appointed Crown Prince of Saudi Arabia, Mohammad attended the inaugural ceremony of the World Cup tournament in Moscow in June 2018 as Putin’s guest.

    After the devastating drone and missile attacks on Saudi Arabia’s oil facilities in September 2019, Putin repeated his offer of S-400 missiles to Riyadh during a 16 September news conference after a meeting on Syria with Turkish and Iranian counterparts: “We are ready to help Saudi Arabia protect their people,” he said. “They need to make clever decisions, as Iran did by buying our S-300, as Mr. Erdo?an did by deciding to buy the most advanced S-400 air defense systems.” Facing stiff US opposition to accepting Putin’s offer, Salman continued to dither.

    Nonetheless, during his state visit to Riyadh in October, Putin brought most of his cabinet and around a hundred top Russian business executives. He and his royal host oversaw the signing of 21 bilateral agreements involving billions of dollars of investment contracts in such sectors as aerospace, culture, health and advanced technology. During a meeting with the Saudi crown prince, Putin mentioned that the Saudi Public Investment Fund allocated $10 billion for joint foreign direct investment projects in Russia.

    On the oil front, Russia found its market share dwindling in the face of increasing US oil exports and discounts that Saudi Aramco had started providing buyers to increase market share. The 2019 cuts agreed to by OPEC and non-OPEC countries were due to expire 31 March, with a new agreement required to limit supply. Between 1 January and early March, oil prices declined by 20 percent to $46 a barrel after the Northern Hemisphere’s warmest weather on record and the unexpected outbreak of the COVID-19 disease that originated in China.

    OPEC developed a plan to slash output by 1 million bpd with Russia-led non-OPEC countries cutting 500,000 bpd. Putin rejected any cuts because, he argued, earlier curtailments had allowed US shale-oil producers to increase market share to the extent that the United States had become a leading petroleum exporter.

    Angered by this rejection, Crown Prince Mohammad ordered Saudi Aramco to give deep discounts on its oil after 1 April. Saudi Aramco also announced that it would raise output to an unprecedented 12.3 million bpd from the current 9.8 million bpd. Putin came up with an increase of 300,000 bpd for Russia. By the end of the trading on 9 March, the benchmarks Brent crude and the American WTI each collapsed by about 25 percent to $34.36 a barrel and $31.13 a barrel, respectively. Global markets went into a tailspin. The US Federal Reserve injected billions into the financial system since 12 March and the market has been volatile since, with the Dow Jones Industrial Average down more than 30 percent for the year.

    Related: Oil Prices Retreat After Massive Rally

    Double whammy: COVID-19 reduced oil demand, and failure of OPEC and non-OPEC groups to cut production levels halved prices (Source: MacroTrends)

    In the Putin-Salman standoff, analysts ponder which man will blink first. With a fiscal break-even petroleum price of $42.50 per barrel, Russia’s economy is more diversified than its Saudi counterpart, with a strong defense industry, the exports of which are second only to America’s. For Saudi Arabia, the fiscal break-even oil price is $85 per barrel, reports the International Monetary Fund. However, Riyadh’s foreign and gold reserves at $496.8 billion in September 2019 were higher than Moscow’s $419.6 billion.

    In Russia, fossil fuels and energy exports account for 64 percent of total exports. Its oil and gas sector covers 46 percent of total government expenditure and contributes about 30 percent to GDP. In Saudi Arabia, the petroleum sector accounts for roughly 85 percent of the kingdom’s revenue, 90 percent of export earnings and 42 percent of GDP.

    Following US and EU sanctions in 2014, Russia suffered a recession that ended after 2017 with an upsurge in oil prides. Since then, the economy has stabilized, but its recent spat with Riyadh caused the ruble’s value to depreciate by 10 percent.

    Earlier, pressured by cheap Saudi oil in 2015, the US shale oil industry reduced its breakeven point from $65 to $46 a barrel. With oil now selling for $30 a barrel, the industry faces a renewed challenge. If this continues, history will repeat itself with many small, independent US drillers filing for bankruptcy because of their failure to repay loans from banks, which had accepted untapped oil reserves as collateral. That development will undoubtedly please the Kremlin.

    By Yale Global 

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      Saudi Arabia, Russia Push Negotiations for Global Oil Pact – Yahoo Canada Finance

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      (Bloomberg) — Saudi Arabia, Russia and other large oil producers are racing to negotiate a deal to stem the historic price crash as diplomats said some progress was made on Sunday.

      The talks still face significant obstacles: a meeting of producers from OPEC+ and beyond — delayed once — is only tentatively scheduled for Thursday. Russia and Saudi Arabia want the U.S. to join in, but U.S. President Donald Trump has so far shown little willingness to do so.

      Oil diplomats are trying to stitch together a meeting of G20 energy ministers for Friday, as part of the effort to bring the U.S. on board, according to two people familiar with the situation.

      Crude prices have fallen 50% this year, as the economic effects of the pandemic have knocked out about a third of global demand. The price crash is so dramatic that it’s threatening the stability of oil-dependent nations, the existence of U.S. shale producers, and poses an extra challenge to central banks.

      Even the International Energy Agency, which represents nations that consume oil, is calling for action. And oil officials know that if a deal to cut output in an orderly way isn’t reached, the slump in prices will force some producers to shut down operations as storage on land and at sea is filling up.

      The aim of talks, first revealed by Trump last week, is to cut oil production by about 10% — the biggest ever coordinated reduction. Oil rallied on Trump’s comments last week, but then pared those gains as the diplomatic intricacies became clearer.

      Cut Together

      Saudi Arabia and Russia both say they want the U.S., which has become the world’s largest producer thanks to the shale revolution, to join the cuts. But Trump had only hostile words for OPEC on Saturday, and threatened tariffs on foreign oil.

      “If the Americans don’t take part, the problem which existed before for the Russians and Saudis will remain — that they cut output while the U.S ramps it up, and that makes the whole thing impossible,” said Fyodor Lukyanov, head of the Council on Foreign and Defense Policy, a research group that advises the Kremlin.

      It’s not clear if Russia and Saudi Arabia will require the U.S. to publicly commit to cut production — a challenge in the private, fragmented American industry — or if a compromise gesture would be enough. Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank, said Moscow would like the U.S. to lift some sanctions as a compromise.

      Russia and Saudi Arabia — which sparred publicly between themselves over the weekend — have also disagreed about how they would calculate the cuts, according to a person familiar with the talks.

      But in another sign of progress, Norway — which hasn’t joined any production cuts since 2002 — signaled over the weekend it was ready to reduce unilaterally its output if others did. And a senior official from the oil-rich Canadian province of Alberta said it will dial into the oil meeting this week. Iraq’s oil minister said he was optimistic about a deal.

      Any agreement will require diplomatic agility at a time when nations are devoting massive resources to fighting the pandemic itself. It’s also a battle of wills between Putin, Saudi Crown Prince Mohammad bin Salman, and Trump. On all sides, there are maneuvers to avoid blame if negotiations fail.

      Trump said Saturday at a White House press briefing he’s opposed OPEC his whole life, and characterized it as a cartel, or monopoly. “I don’t care about OPEC,” he said. He threatened to use tariffs if needed to protect the domestic oil industry, even as he predicted that Saudi Arabia and Russia would come to an agreement.

      Meanwhile Saudi Arabia postponed its monthly price-setting event for exported oil. Saudi Aramco’s official selling prices for May will be pushed to Thursday, according to people familiar with the situation. The OPEC meeting has also been tentatively rescheduled for Thursday.

      The move allows the company to have a better idea of how negotiations are going before setting the prices that are its key weapon in its battle for market share. Last month, it also delayed the event in the midst of wrangling at OPEC+ and responded to the breakdown in those talks with a historic price cut — launching the price war negotiators are now trying to unravel.

      (adds G20)

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      Ontario's hardware stores shift to curbside pickup, delivery during COVID-19 pandemic, – CTV News

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      OTTAWA —
      Ontario’s hardware stores, cannabis retailers and non-essential construction sites are now required to stay closed due to the COVID-19 pandemic.

      The Ontario Government reduced the list of essential businesses allowed to remain open to 44 categories, including grocery stores, pharmacies, convenience stores and LCBO and Beer Stores.

      Hardware stores and cannabis retailers are no longer allowed to stay open for in-store shopping, but can offer online service and curbside pick-up. All non-essential stores must stay closed for two weeks.

      Here’s a look at how stores have adjusted their business model due to the COVID-19 pandemic.

      Ontario Cannabis Store

      The Ontario Cannabis Store says you can order online for delivery.

      The Ontario Cannabis Store is waiving delivery charges to make its service accessible.

      Preston Hardware

      Preston Hardware says you can place your order online or by email for curbside pick-up or delivery.

      Canadian Tire

      All Canadian Tire stores in Ontario must close for in-store shopping.

      Canadian Tire says customers can still shop online with free curbside pick-up at stores or delivery

      Home Depot

      Hope Depot stores in Ontario remain open for curbside pick-up and delivery.

      Lowe’s Canada

      All Lowe’s stores in Ontario remain open, but only for curbside pick-up following an online order.

      Lowe’s also offers delivery options for purchases made online

      Home Hardware

      Home Hardware says some of its locations are offering delivery-only.

      Shoppers are advised to check with their local store about online, phone or email orders.

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      Oil prices set to open lower due to Saudi-Russia row – The Globe and Mail

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      Russian President Vladimir Putin attends a meeting on global energy markets via a video link at his residence outside Moscow, Russia, April 3, 2020.

      SPUTNIK/Reuters

      Global benchmark oil prices are expected to open lower on Monday as a dispute between top crude exporters Russia and Saudi Arabia raises concerns of another collapse in talks to curb production at a meeting this week.

      Russian President Vladimir Putin put the blame for the crash in prices on Saudi Arabia on Friday – prompting a firm response from Riyadh the following day, disputing Putin’s claims.

      Crude futures surged for a second day on Friday, with both U.S. and Brent contracts posting their largest weekly percentage gains on record due to hopes that a global deal to cut crude supply worldwide would be struck at talks, which are now set for April 9. [O/R]

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      The sharp rebound from weeks of losses came after U.S. President Donald Trump said Moscow and Riyadh would negotiate to end a price war that slashed prices by more than half last month.

      “Given the slimmer chances of a deal, prices are likely to give up the gains made last week that were a shortcovering rally induced by Trump’s comments,” said Amrita Sen, co-founder of the Energy Aspects consultancy.

      OPEC and its allies are working on a global agreement for an unprecedented oil production cut equivalent to around 10% of worldwide supply in what they expect to be a global effort including countries that do not exert state control over output, such as the United States.

      Trump has, however, made no commitment to take the extraordinary step of persuading U.S. companies to cut output.

      Per Magnus Nysveen, head of analysis at Rystad Energy, said the decline in global demand due to the coronavirus pandemic and the global lockdowns was larger than the proposed cuts by the OPEC+ alliance.

      “It is not strange for the market to hike prices by enthusiasm such as Friday’s, but for the levels to stay stable for more than a day or two, it takes concrete developments and deals on the ground,” he said.

      On Friday, Brent crude futures rose 13.9%, or $4.17 a barrel, to settle at $34.11. U.S. West Texas Intermediate (WTI) crude CLc1 rose $3.02, or 11.93% to settle at $28.34.

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      OPEC and its allies postponed an emergency meeting, led by Saudi Arabia, where the oil cuts could be agreed upon. A senior Saudi source told Reuters on Sunday, that the kingdom would host the meeting via video conference on April 9 and the delay was to allow more time to bring other producers on board.

      Saudi Aramco will delay the release of its crude official selling prices (OSP) for May until April 10 to wait for the outcome of a meeting between OPEC and its allies regarding possible output cuts, the Saudi source said.

      “As Aramco seems to have postponed the release of their official selling prices for May, it seems the kingdom still believes an oil production cut deal is possible,” said UBS commodities analyst Giovanni Staunovo.

      “The biggest challenge remains how to split up those cuts among producers, particularly if U.S. oil producers will not join with voluntary cuts.”

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