Saudi Arabia’s Oil Price War Is Backfiring

[Pitcher]

https://www.spglobal.com/platts/en/market-insights/latest-news/oil/033020-iraqs-oil-minister-says-selling-crude-at-20b-talking-to-iocs-about-payments-report
 

Iraq's oil minister says selling crude at $20/b, talking to IOCs about payments: report

Dubai — Iraq, OPEC's second-largest oil producer, is selling its crude at an average of $20/b and plans to talk to international oil companies about their payments and contracts, the country's oil minister said, Iraqi news outlet al-Mirbad reported Monday.

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Iraq is selling around 70% of its crude exports to Asia, Thamer al-Ghadhban said, al-Mirbad reported.

The ministry is also in talks with IOCs over the best way to move forward given the low oil prices and their impact on Iraq's economy and finances, he said.

There is a need to reach an agreement, whereby the IOCs' payments are not a burden on the government's limited finances while at the same time making sure the IOCs continue to operate in the country, he said.

Iraq is struggling to shore up its finances despite its ability to pump at will as of April 1 following the breakdown of OPEC's talks earlier this month.

The oil price crash, outbreak of the coronavirus and lack of a permanent government in the country are exacerbating an already fragile economic situation.

Brent was recently trading 6.12% lower at $26.24/b.

Postpone payments

Iraq 's state-run Basrah Oil Co. has asked four international oil companies operating in the country to cut budgets by 30% and postpone payments to subcontractors due to the oil price crash.

The March 22 letter from Ihsan Ismaeel, Basrah Oil's director general, was sent to BP, lead operator of the Rumaila oil field, Italy's Eni, which works at the Zubair field, ExxonMobil, operator of West Qurna 1, and Russia 's Lukoil, which works at West Qurna 2. The fields have a total production capacity of about 3 million b/d, well above more than half of the country's total output.

The letter, seen by S&P Global Platts, requests IOCs to reconsider work programs and reduce budgets by 30%, inform BOC of their ability to postpone or halve payments in Q1 and Q2 and amend contracts with subcontractors to include "deferred payment plans."

 

[Pitcher]

https://in.reuters.com/article/health-coronavirus-india-hpcl/hpcl-invokes-force-majeure-on-iraqi-oil-industry-source-idINKBN21H1WT?rpc=401&
 

HPCL invokes force majeure on Iraqi oil - industry source

Nidhi Verma

NEW DELHI (Reuters) - Indian refiner Hindustan Petroleum Corp Ltd has issued a force majeure notice to Iraq’s Oil Marketing Company (SOMO) to cancel two oil cargoes as local fuel demand is hit by a lockdown to stem spread of coronavirus, an industry source said. 

State-run HPCL was scheduled to lift these cargoes containing one million barrels each in the first half of April, this source said. The source did not wish to be identified citing confidentiality. 

No immediate comment was available from HPCL. SOMO could not be immediately reached for comments. 

HPCL is the third Indian company to invoke force majeure for crude supplies. Last week two India refiner- Indian Oil Corp and Mangalore Refinery and Petrochemicals Ltd have invoked force majeure on crude imports mainly from middle east. 

Many Indian refiners have reduced crude processing as fuel demand drops. 

HPCL has cut crude processing at its Mumbai refinery by 10%, while it is operating its Vizag refinery at 100% capacity to feed southern Indian market.

[Pitcher]

https://oilprice.com/Energy/Energy-General/Saudi-Arabia-Is-Ignoring-US-Pressure.html
 

Saudi Arabia Is Ignoring U.S. Pressure

By Editorial Dept - Mar 27, 2020, 12:30 PM CDT

Market Movers

There has been no letting up in the oil price war despite the intense demand destruction caused by the global Covid-19 pandemic that has now reached Europe and the United States. There have been rumblings about the United States getting involved in the war, pleading with Saudi Arabia to reassure the market that it will not flood it with oil. So far, all indications are that those requests are falling on deaf ears, with Riyadh set, as of April 1, to flood the market. Russia has positioned itself to ramp up production, too, but to a lesser extent.

Many were hoping that the G20 talks would include discussions about oil supplies and prices, but before the meeting, Russia said that the issue was not on the agenda. G20 was going to be MBS’ big grandstanding for his new post-Khashoggi reputation as a good guy, and most thought that this wouldn’t go hand-in-hand with inadvertently destroying the US shale patch. However, with the coronavirus pandemic, the G20 lost its luster, so he will wait for a better opportunity.

As a result of the oil price war combined with the pandemic’s stripping of global demand, oil prices continue to trade in a low range, with WTI currently trading around $22 per barrel, bolstered in part by the stimulus bill that the Senate managed to pass earlier this week.

For now, Saudi Arabia has little incentive to stop the oil price war. Yes, prices are dangerously low, but it’s also producing more to boost…

[Pitcher]

https://oilprice.com/Latest-Energy-News/World-News/Russias-Largest-Oil-Producer-Halts-Operations-In-Venezuela.html
 

Russia's Largest Oil Producer Halts Operations In Venezuela

By RFE/RL staff - Mar 30, 2020, 4:30 PM CDT

Russia’s largest oil producer, Rosneft, has announced that it is halting operations in Venezuela and selling its assets there to a company fully owned by the Russian government.

Rosneft said in a statement on March 28 that it “concluded an agreement with the company 100 percent owned by the government of the Russian Federation, to sell all of its interest and cease participation in its Venezuelan businesses," including multiple joint ventures, oil-field services companies, and other activities.

The move appeared to be aimed at protecting Rosneft from U.S. sanctions while Russia continues supporting Venezuelan President Nicolas Maduro.

The United States has imposed sanctions on two Rosneft subsidiaries, including a company based in Geneva that sells crude oil to European customers.

Rosneft spokesman Mikhail Leontyev was quoted by Russian news agencies as saying that the company expects the United States to now waive sanctions against its subsidiaries.

He said the decision was aimed at "protecting the interests of our shareholders."

Rosneft is led by Russian President Vladimir Putin's longtime associate Igor Sechin.

[Pitcher]

https://oilprice.com/Energy/Energy-General/Russias-Plan-To-Bankrupt-US-Shale-Could-Send-Oil-To-60.html
 

Russia’s Plan To Bankrupt U.S. Shale Could Send Oil To $60

By Irina Slav - Mar 29, 2020, 7:00 PM CDT

As soon as U.S. shale leaves the market, prices will rebound and could reach $60 a barrel, Rosneft’s Igor Sechin said recently. As fate would have it, in what many would have until recently considered an impossible scenario, a lot of U.S. shale might do just that.Breakeven prices for U.S. shale basins range between $39 and $48 a barrel, according to data compiled by Reuters. Meanwhile, West Texas Intermediate (WIT) is trading below $25 a barrel and has been for over a week now. 

The SCOOP/STACK play in Oklahoma has the highest average breakeven price at $48 a barrel. Surprisingly, the Permian is not the lowest-cost play but the second-lowest, at $40. The lowest-cost basin, on average, is the Delaware Basin, part of the Permian.

On the face of it, these averages give no cause for optimism to an industry hit hard and fast by a perfect storm of radically lower demand and a sharp increase in supply. However, it’s worth noting the figures above are averages. They cover a range of breakeven costs that last year, according to the Dallas Fed, featured breakeven prices of as little as $23 a barrel in the Permian. In all fairness, these figures were reported last year. Since then, the lowest may have gone up or, in some locations, down.

Surviving the crisis seems to be a combination of luck with acreage, Wright’s Law, and size. The problem is that luck eventually runs out as does the oil from fracked wells—faster to start producing than conventional ones and faster to deplete—and that Wright’s Law does not hold to $0. Experience in performing an activity can only go as fast as improving productivity and efficiency.

What about size? 

The bigger the size of a company, the more room it has to cut operating costs (the day-to-day expenses related to running any business). Companies can trim these costs by asking suppliers to lower their prices, which some shale players have already done, asking for a sizeable discount, too--some as much as 25 percent.

Related: Not Even The $2 Trillion Stimulus Package Can Save Oil Markets
This strategy is what happened during the last oil-price crisis, too. At the time, shale producers spoke about efficiency gains and strict cost controls. Nevertheless, most of the relief came from oilfield service providers drastically slashing the price of their products and services so they could survive during the crisis, ensuring in this way the survival of their clients. As a result, the oilfield services segment of the industry suffered longer than E&Ps did.

Efficiency gains aside, breakeven prices have fallen because of lower operating expenses. These now need to be cut further and already are: companies are already curbing business activity; in this case, by idling rigs and drilling fewer wells. This is one of the self-regulating mechanisms of the industry. The fewer new wells drilled, the smaller the production growth until eventually, it evaporates, and production begins to shrink. 

We are likely to see this soon enough.

U.S. shale has been praised for changing the world oil game and for managing to bring their costs low enough to survive the 2014-2016 crisis. Indeed, the industry deserves most of the credit it has received: going from the second-highest production cost level in the world to one of the lowest is undoubtedly an accomplishment deserving praise. 

However, the shale fan club often forgets that there is a floor under operating costs and that there are only so many discounts an E&P can ask from an oilfield service provider. Once those discounts are reached and operating costs reach the max, E&Ps will be on their own. Many of the smaller independents, as well as the large shale players, have little wriggle room in the current supply and demand situation.

Related: Oil Climbs As U.S. Pushes For An End To The Price War

The question that many are asking is whether the shale industry could repeat its feat from the last crisis: squeeze costs lower, retrench, survive, and enjoy lower breakevens and higher profits once the crisis is over. The answer would have been “maybe” had the current crisis been only purely related to excessive supply, like the last one. Unfortunately, this is not the case. The industry is now also struggling with what is increasingly looking like the biggest demand slump in the history of oil.

On top of it all, the space for further reductions in breakeven prices is more limited than it was five years ago. It is a law as universal, perhaps, as Wright’s Law. You cannot innovate indefinitely, and you cannot bring down the breakeven level of a business to zero. What’s more, shale may be facing higher rather than lower breakevens in some parts of the shale patch.

Shale formations are not all made equal. In some parts of a play, the oil is more easily—read cheaply—extractable than in other parts of the same play. Some of these sweet spots, however, will have been exhausted by now, forcing well operators to tap higher-cost locations, a topic that oil industry expert Art Berman has discussed exhaustively.

Thanks to technological advances, there is certainly more room for efficiency improvements in the extraction of oil from shale formations. These efficiency improvements would likely bring breakeven levels across the shale patch even lower. For those that survive the crisis that more and more people are calling unprecedented. 

[Pitcher]

https://oilprice.com/Energy/Energy-General/Rig-Count-Crashes-Most-In-4-Years-As-Oil-Shock-Rocks-US-Shale.html
 

Rig Count Crashes Most In 4 Years As Oil Shock Rocks U.S. Shale

By Julianne Geiger - Mar 27, 2020, 12:15 PM CDT

Baker Hughes reported that the number of oil and gas rigs in the US fell again this week by 44, falling to 728, with the total oil and gas rigs clocking in at 278 fewer than this time last year. It is the largest single-week drop since February 2016.

In the runup to the published rig count, analysts were predicting that the results would show a steep drop off in the number of active rigs, and three of the biggest drilling operators in Texas made significant budget cuts, indicating that the industry is bracing for tougher times ahead. 

The number of oil rigs decreased for the week, by 40 rigs, according to Baker Hughes data, bringing the total to 624—a 192-rig loss year over year.

The total number of active gas rigs in the United States fell by 4 according to the report, to 102. This compares to 190 a year ago. 

The miscellaneous rig count stayed the same this week, for a total of 2 miscellaneous rigs.

Despite the sharp drop off in rigs, the EIA’s estimate is that the United States produced 13 million barrels of oil per day on average this week, just 100,O00 bpd off the all-time high.

The number of rigs in the most prolific basin, the Permian, fell by 23 this week to 382, compared to 454 rigs one year ago. The second largest basin, the Eagle Ford, lost 4 rigs this week, for a total of 63 rigs, compared to 78 a year ago.   Related: Not Even The $2 Trillion Stimulus Package Can Save Oil Markets

The WTI benchmark at 12:15 pm was trading at $21.26 (-5.93%) per barrel—almost $3 per barrel below last week levels as market fears entrench deeply that the industry will get squeezed beyond repair between oversupply coming from Saudi Arabia and Russia, and lack of demand coming from the Covid-19 lockdowns that are widespread throughout the world’s largest oil consuming nation, the United States.

Further pressure was put on oil prices today when it became clear that the $2 trillion stimulus bill might not sail through the House unopposed, as fiscal hawks threaten to delay the process.

The Brent benchmark was trading at $27.33 (-4.61%)—roughly $2.50 per barrel below last week’s levels.  

Canada’s overall rig count decreased by 44 rigs as well this week, to a total of just 54 rigs. Oil and gas rigs in Canada are now down 34 year on year. 

WTI was trading down by 4.42% on the day at 1:08pm EDT, with Brent trading down 3.60%.

[ChuckFinley]

America may be a lot of things but one thing is they can capitalize on an opportunity. They will board up their windows but at the first sign of a profit they will be back. Free Market Baby - Oh Yeah.   

[Pitcher]

https://uk.reuters.com/article/us-russia-iraq-gazpromneft-oil/russias-gazprom-neft-rebuffs-proposal-from-iraqi-kurdistan-to-cut-investments-idUSKBN21I2ID?rpc=401&
 

Russia's Gazprom Neft rebuffs proposal from Iraqi Kurdistan to cut investments

MOSCOW (Reuters) - Gazprom Neft, the oil arm of Russian gas giant Gazprom, will not reduce investment in its project in Iraqi Kurdistan despite a request from the semi-autonomous region’s government to do so, it said on Tuesday. 

Following a slump in oil prices several countries have asked oil producers to cut investments, which governments often have to partially reimburse as part of their contractual arrangements. 

Gazprom Neft said the Iraqi Kurdistan government had asked oil producing companies, including Gazprom Neft Middle East, to reduce investments. 

However, Gazprom Neft told Reuters it had declined to cut spending on the development of its Sarqala oil project in the region. 

“All the investments had been initially agreed with the corresponding ministries, and they are already below the required level,” Gazprom Neft said. 

Gazprom Neft holds a 40% stake in the Garmian block, in which the Sarquala field is located, and 80% in the Halabja and Shakal blocks. 

Last week sources told Reuters that Iraq had asked all international oil companies to cut the budgets of developing oilfields by 30% as the fall in oil prices has hit government revenues. 

Gazprom Neft said it had not received such proposals for its Badra project in eastern Iraq.

[Pitcher]

https://www.bnnbloomberg.ca/iraq-seen-boosting-oil-output-in-april-in-spite-of-coronavirus-1.1415258
 

Iraq Seen Boosting Oil Output in April In Spite of Coronavirus

(Bloomberg) -- OPEC’s second-biggest producer plans to boost oil output in April, as the demise of a global production-cuts agreement frees it up to pump at will.

Iraq plans to raise output by about 200,000 barrels a day, reaching 4.8 million barrels a day in average production, according to a person with knowledge of the matter. The country would join Saudi Arabia, Russia and others in adding more barrels to a sated market amid a price war -- even as the coronavirus saps global demand.

Iraq will ship 3.6 million barrels a day in April, using its pipelines at maximum export capacity, the person said, asking not to be identified because the information isn’t public. By comparison, Iraq’s exports for March averaged 3.4 million as of Sunday.

The nation sees no constraints on its April shipments but may face issues if the pandemic persists and if customers’ storage tanks become full, the person said.

Iraq’s oil ministry didn’t immediately respond when asked to comment.

The Organization of Petroleum Exporting Countries failed earlier in March to persuade Russia to join it in making deeper cuts in output. The collapse of their coalition, known as OPEC+, has led to an oil-price war, and several producers are poised to uncork a torrent of new supply once their cuts agreement expires at the end of the month.

The relative shares of Iraq’s sales to Asia, Europe and U.S. haven’t been affected by the coronavirus. Asia is still Iraq’s largest regional market, and China remains its biggest single buyer, accounting for 800,000 to 900,000 barrels a day in March exports. Some refineries in China are increasing their processing as life starts returning to normal in some cities there, according to the person.

Iraq so far isn’t planning to fill storage tanks at the regional trading hub of Fujairah in the United Arab Emirates, the person said.

[Pitcher]

https://oilprice.com/Latest-Energy-News/World-News/How-Coronavirus-And-An-Assassination-Could-Transform-Iran.html
 

How Coronavirus And An Assassination Could Transform Iran

By Gregory R. Copley - Mar 31, 2020, 12:30 PM CDT

Iran has lacked viable, legitimate, and representative governance since February 1979. That has been demonstrated by its social and economic performance domestically. Its clerical Government has not been prepared to trust the population, and the population, as a result, has not trusted the Government.

Equally, however, external powers — friendly or unfriendly — have constrained Iran since 1979 from progressing as a normal member of the international community. This was a response to the behavior of the Iranian Government, but it was often counter-productive.

The current transformation of the international strategic and economic balance — resulting from the 2019-20 COVID-19 crisis and the attendant global “fear pandemic” — has taken the outlook for Iran into a new arena. The COVID-19 crisis management by the clerical Government was seen as so inept that the remaining trust levels in government by the public appeared to have evaporated.

The one “man on horseback”, who appeared to be able to galvanize a sense of national pride and direction — Maj. Gen. Qasem Soleimani — was killed in his war against the US, and governmental behavior since his death on January 2, 2020, has been haphazard and domestically divisive.

US thoughts on possibly taking advantage of the internal disarray in Iran included the announcement on March 20, 2020, that the US Navy had deployed two supercarrier strike groups — around USS Dwight D. Eisenhower and USS Harry S. Truman — with unspecified purpose. That deployment seems destined, if escalated, only to galvanize the support of a reluctant Iranian population around the failed clerical Administration.

Related: Is This The Beginning Of The End For Texas Oil?

Iranians consistently rally around their government when a foreign threat appears.

The US, Iran, and others have failed to learn that repeating failed policies does not improve the chances of their success.

In viewing Iran’s prospects, it is essential to understand that most policies by and toward Iran for more than four decades have been poorly-conceived and counter-productive.

The exceptions are that:

- (a) The policies of the ruling clerics of Iran have been geared solely to the preservation of their power, and these have worked; and

- (b) The policies of Iraq (1980s), Saudi Arabia, and the United Arab Emirates (supported by the US) have been designed to cause, lead, or demand an international isolation of Iran, and these have partially worked.

Neither of those policy streams has benefited the Iranian public nor the international community.

It could be argued that both of those draconian policies — of preservation of power domestically, and international containment — did provide an opportunity for Russia (after 1990) and the People’s Republic of China (PRC) to gain some traction in the region because they kept the US and the West generally at bay. So there have been limited benefits for Moscow and Beijing, the most notable being the avoidance of an opportunity for a reassertion of Western influence.

There is no evidence that, since the departure of the Shah from Iran in early 1979, Saudi Arabia’s security has benefited from the failure to develop a viable modus vivendi with Iran.

The global economic breakdown into what, at least for a brief period, will be a depression will have a profound impact on Iran. Of primary initial importance will be the contraction of demand for Iranian oil and gas from the PRC and Japan, not just in terms of volume, but in terms of price. Allies (a term which needs to be qualified) Russia, Turkey, and Qatar (and to some extent Iraq and Syria) can do little for Iran at this time, particularly in the critical area of need: food supply.

Absent an improvement in food supply, all domestic political crises will be exacerbated, particularly in light of the Government’s poor response to the COVID-19 contagion which resulted from the clerical Government accepting PRC pressure to sustain unfettered air links between the two countries, thus exposing Iran to a higher-than-necessary level of risk to COVID-19.

By March 30, 2020, the Government acknowledged that COVID-19 deaths were 2,757 out of a confirmed caseload of 41,495. In fact, the contagion rate in Iran at that point was an absolute unknown, and was clearly much higher than official “confirmed cases”, and the death toll was also much higher. The lack of a clear understanding of the dimension of the health threat further exacerbated public mistrust in the Government.

Related: An Oilman’s Plea To President Trump

Iran’s porous border with Turkey may well have contributed to the situation in that country where informed estimates of contagion were that some 60 percent of the Turkish population had contracted COVID-19.

Iranian Pres. Hasan Rouhani made the case on March 29, 2020, that sustained US economic sanctions against Iran were to blame for Iran’s situation. In fact, while the sanctions may have inhibited the Government’s late-starting attempts to respond to the epidemic, the cause of the high-rate initial contagion was entirely due to the Government’s submission to PRC demands for constant, open travel from affected PRC areas to Iran.

What, then, is to happen to Iran, and what should or could the Western response be to the changing situation?

- Iran’s Government is reaching a watershed in its ability to impose further constraints on public discontent, but, equally, the internal opposition lacks cohesion, energy, and resources. A military-led solution may occur if, for example, Supreme Leader Ali Hoseini Khamene‘i relinquishes power or dies.

- The US must decide whether, at this historical point, it wants to devote increasingly limited resources to supporting the domestic opposition as part of a strategy to constrain the PRC. Washington first must understand Iran, which it arguably has not understood since Pres. Richard Nixon (1969-74), the last US President to balance Iran and Saudi Arabia.

As with all good battlefield sieges, the besieger must offer hope to the besieged. For Iran, hope must be in the restoration of its historical civilizational glory.

[Pitcher]

https://oilprice.com/Latest-Energy-News/World-News/Trump-Set-To-Unveil-Controversial-Fuel-Economy-Rules-Today.html
 

Trump Set To Unveil Controversial Fuel Economy Rules Today

By Irina Slav - Mar 31, 2020, 10:30 AM CDT

The Trump administration will later today announce the new fuel economy rules that environmentalists have decried as harmful and compromising the United States’ efforts to fight climate change.

“When finalized, the rule will benefit our economy, will improve the U.S. fleet’s fuel economy, will make vehicles more affordable, and will save lives by increasing the safety of new vehicles,” EPA spokeswoman Corry Schiermeier said yesterday, ahead of the announcement, as quoted by the AP. 

“This is first time that an administration has pursued a policy that will net negative benefit for society and reduce fuel savings,” a former EPA official, Chet France, said.

The administration proposed the new rules that would effectively roll back Obama-era fuel economy standards for automakers in 2018, recommending the freezing of the mile-per-gallon standards for passenger cars and light trucks after model year 2020.

The proposed rulemaking of the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) and the EPA was intended “to correct the national automobile fuel economy and greenhouse gas emissions standards to give the American people greater access to safer, more affordable vehicles that are cleaner for the environment,” the Department of Transportation said at the time.

Since then, the NHTSA has tweaked those rules, so instead of freezing the mile-per-gallon emission standards for six years to 2026, the administration is now proposing an increase to fuel economy by 1.5 percent annually. The Obama-era regulations called for a 5% increase to fuel economy each year.  

According to some opponents, the emissions could end up being even worse.

“The SAFE vehicles rule, if finalized in its present form, will lead to vehicles that are neither safer, nor more affordable or fuel efficient,” Democratic Senator Thomas Carper, from the Senate Environmental and Public Works Committee, said in January.

The proposed rules pitted Trump against California, with the state refusing to comply with relaxed emission rules and insisting on enforcing its own, much stricter ones. Several other states also said they would implement their own more stringent emissions rules. The feud drew in carmakers, too, with the majors split between the camps.

[Pitcher]

That last article will make AOC’s head explode.  Maybe that is the plan 😆 

[Pitcher]

https://oilprice.com/Latest-Energy-News/World-News/How-Russia-Is-Shedding-Its-Venezuelan-Assets.html
 

How Russia Is Shedding Its Venezuelan Assets

By Irina Slav - Mar 31, 2020, 11:30 AM CDT

Russia has set up a wholly state-owned oil company named Roszarubezhneft after Rosneft announced it would exit Venezuela and ditch its Venezuelan assets to a new--as of yesterday--and unnamed company, Reuters reports.

The news agency also cited an unnamed source as saying Moscow had cut its stake in Rosneft below a majority stake after it agreed to buy Rosneft’s Venezuelan assets.

The capital of Roszarubezhneft was set at some $4 billion, according to official data, which Russian business daily Vedomosti called “massive”. According to the daily, Moscow paid for the Venezuelan assets in Rosneft stock, which is where the reduction of the state’s interest in the company came from. The value of the deal was 9.6 percent in Rosneft.

Rosneft announced its pullout from Venezuela over the weekend without going into details about the reasons. However, these are obvious enough and boil down to the effect of U.S. oil sanctions on the company.

Earlier this year, Washington announced sanctions on Rosneft’s Swiss-based trading arm as part of its attempts to cut off all revenue streams to the Maduro government in Caracas. The U.S. has signaled that it is ready to tighten even more the noose around the Venezuelan government. 

“Today Rosneft concluded an agreement with the company 100% owned by the Government of Russian Federation, to sell all of its interest and cease participation in its Venezuelan businesses, including joint ventures of Petromonagas, Petroperija, Boqueron, Petromiranda and Petrovictoria, as well as oil-field services companies, commercial and trading operations,” the state giant said in a press release on Saturday.

Meanwhile, Venezuela’s oil production fell to the lowest in five months, Reuters reported yesterday, with the total average at some 670,000 bpd, according to documents and unnamed sources. That’s down from an average of around 900,000 bpd for November to February.

[Pitcher]

https://oilprice.com/Energy/Energy-General/Shales-Comeback-Could-Be-Better-And-Bigger-Than-Ever-Before.html
 

Shale’s Comeback Could Be Better And Bigger Than Ever Before

By Haley Zaremba - Mar 31, 2020, 12:00 PM CDT

Earlier this month global oil prices fell more sharply in one day than they have in nearly 30 years. The cause was a snowball effect driven by a series of unfortunate events: as coronavirus stalled the global economy, oil demand fell sharply, which pushed Saudi Arabia and Russia, the two leaders of OPEC+, to meet to decide on a strategy plan, which failed spectacularly, ending in an oil price war. Now, nearly a month later, things are still looking grim.  Oil prices have fallen so sharply that they have given coal the unexpected distinction of being themost expensive fossil fuel in the world. Instead of giving a boost to the competition, however, the failing oil market has brought biofuels down with it, and the renewable energy industry is begging for a bailout in the face of bankruptcy along with the rest of the energy industry. 

Most experts say that we shouldn’t expect a rebound any time soon. Here’s just a sampling of recent headlines: “Oil crash only a foretaste of what awaits energy industry” from the Financial Times, “Few U.S. shale firms can withstand prolonged oil price war,” from Reuters, “Shale plays, oil patch see tens of thousands of layoffs across the industry” from World Oil, and “Not Even The $2 Trillion Stimulus Package Can Save Oil Markets” from yours truly right here at Oilprice. Despite this echo chamber of doom and gloom, however, there are still some industry insiders who don’t take such a negative outlook. 

“The American shale industry shocked the world with its rebound after the 2014-2016 bust, setting records for output that pushed the U.S. to the top spot among oil-producing countries,” reported Bloomberg earlier this week. “A handful of experts is saying that will happen again.” 

Related: Natural Gas Prices Could Double Next Year

It wouldn’t be an easy comeback, however. The issues that led to the crash in the first place -- coronavirus and its economic destruction in conjunction with the glut still being exacerbated by Russia and Saudi Arabia -- are still very much in play. And this crash is simply much worse than its predecessors. “Everybody agrees U.S. production will take a bigger hit than last time [in the 2014-2016 bust], when it dipped before soaring,” says Bloomberg. “As many as 70 percent of the 6,000 shale drillers may go bankrupt, and one-third of shale-patch workers are expected to lose their jobs. Wall Street, which financed the last boom, has cut off the cash spigot.”

But there are still some experts who are keeping an optimistic outlook. While things won’t get better right away, they say, we will recover eventually. “They’re echoing a widespread view that’s mostly unspoken during the market meltdown: Yes, America can shock the world again. The boom-and-bust cycle will shift, and shale is in a position, with its infrastructure, its ability to ramp-up quickly and its plentiful reserves, to rise from the ashes stronger than ever.”

Daniel Yergin, a Pulitzer Prize-winning oil historian and vice chairman of IHS Markit Ltd. told Bloomberg that when U.S. shale does make a comeback, it will be better than ever. Think of it as natural selection. The oil companies left standing will be more efficient, more tech-savvy, more experienced, and more prepared for challenges and market failures than they are today. And the oil that gave the U.S. the great shale revolution will still be gushing. “Companies go bankrupt, but rocks don’t go bankrupt,” Yergin said in an interview with Bloomberg. “When this all shakes out, there will be other people to develop shale.”

Yergin doesn’t speak for everyone, however. Far from it. Even if shale does make an incredible comeback, with the best and the brightest companies reviving the shale patch, oil’s dominance as a fuel is facing continued demand side challenges as the world continues to diversify away from crude.

[Pitcher]

https://oilprice.com/Energy/Crude-Oil/Texas-Oil-Drillers-Prepare-To-Halt-Production.html
 

Texas Oil Drillers Prepare To Halt Production

By Irina Slav - Mar 31, 2020, 10:00 AM CDT

Texas oil companies may soon cut back production, both because of a looming lack of available storage space and because wells are becoming uneconomical at $20 per barrel WTI. 

Many regional grades are trading lower than that--approaching negative territory.

“Large-scale production interruptions appear inevitable and imminent,” according to Pioneer Natural Resources and Parsley Energy executives, who wrote to the Texas Railroad Commission asking the industry body to order a production cut, Reuters reports.

One commissioner, Ryan Sitton, already suggested cuts, possibly in partnership with OPEC, earlier this month, before the crisis really hit. Now, the cuts, with or without OPEC, seem inevitable, and the industry is eager to start cutting, calling on the regulator to effect the cuts beginning in May.

“We think it’s important to save this industry,” Reuters quoted Pioneer’s chief executive Scott Sheffield as saying, adding that he had suggested a production cut of as much as 20 percent, but excluding the smallest producers in the state.

There is a catch, however. According to Sitton, Texas will not resort to production cuts unless Saudi Arabia and Russia agree to the cut, too.

“I’m not advocating we do anything on our own,” the commissioner told Reuters. “If it is the right thing to keep some stability in the world, we can do it.”

Saudi Arabia and Russia don’t seem too enthusiastic about cuts, however. Saudi Arabia just yesterday announced plans to boost its oil exports to 10.6 million bpd in April and more than 10.8 million in May.

Meanwhile, pipeline operators in Texas are asking producers to stop pumping oil because storage space is filling up. The storage problem is becoming critical on a global scale. According to the chief analyst of data analytics firm Kayrros, if storage continues to fill up, oil prices could fall close to zero. This zero space available could happen in months, if not weeks.

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https://www.iraq-businessnews.com/2020/03/30/krg-to-investigate-alleged-250m-payment-from-rosneft/
 

KRG to Investigate Alleged $250m payment from Rosneft?

 

The Prime Minister of the Kurdistan Regional Government (KRG), Masrour Barzani, has reportedly called for the public prosecutor to launch an investigation into allegations that Russian state oil company Rosneft paid $250 million to a consultant to secure deals in Iraqi Kurdistan.

Earlier this month, Bloomberg claimed that the oil company paid the money an unknown individual in 2017 and 2018 to become the dominant foreign player in the Kurdish oil industry.

 

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https://oilprice.com/Energy/Energy-General/The-US-Cant-Afford-To-Let-Shale-Fail.html
 

The U.S. Can’t Afford To Let Shale Fail

By Robert Rapier - Mar 31, 2020, 1:00 PM CDT

It’s no secret that the growth of U.S. shale oil has been a thorn in the sides of both Saudi Arabia and Russia. They have seen their market shares erode as the shale boom made the U.S. the world’s largest producer of crude oil.But Saudi Arabia’s national oil company, Saudi Aramco, is a single entity that produces 13 percent of the world’s oil and controls 17 percent of the world’s proved reserves. That puts them in a very powerful position. They can withhold a lot of oil from the market, or they can flood the market with oil and crash the price.

I have warned many times that Saudi Aramco’s power shouldn’t be underestimated, even as some were suggesting the shale oil had rendered OPEC (which they control) toothless. In an article I wrote in 2016, I observed:

“OPEC is a big reason oil prices fell into $20s earlier this year, and they were a big reason oil prices were at $100 a few years ago. What other organization has the power to move the price of oil so dramatically — both up and down? That is real market power. So they may sometimes behave like a paper tiger. But they are capable of rapidly moving the global oil markets.”

Saudi Arabia should not be underestimated. They started a price war in 2014 that drove oil prices into the $20s. No other single entity could have done that. The strategy temporarily stalled U.S. oil production, and although they did bankrupt a few shale oil producers, the industry proved resilient. So Saudi Arabia switched back to cutting production to prop up prices in 2016, and until recently they had maintained that strategy.

Related: Oil Hits $20 For The First Time In 18 Years
But this year’s coronavirus (COVID-19) outbreak has caused an enormous decline in oil demand, putting oil under tremendous price pressure. Saudi Arabia wanted more emergency production cuts in response. They had been working with Russia to enact this strategy.

This time, Russia said “Enough is enough. No more cuts.” So, Saudi Arabia responded by ramping up production. When they did so, we saw a mind-boggling 30 percent drop in the price of oil overnight.

However, this time Saudi Arabia may succeed where they failed in 2014. They struck at a very vulnerable time. U.S. producers were already reeling from the decline in production, and this now places them under tremendous pressure.

The energy sector is suffering from a triple whammy. The collapse of oil demand, the overall decline in the stock market, and finally – and most importantly – the price war that Russia and Saudi Arabia have started have crushed the U.S. energy sector.

Now I am seeing some sentiment from people that we should just let the industry go bankrupt. I have seen people cite the oil industry’s subsidies, or the fact that too many producers took on too much debt, and that it should therefore be allowed to fail.

Let me make a brief point about subsidies. Recently, President Trump suggested using funds from a program that helps low-income Americans afford heating oil to combat coronavirus. Some Democrats howled at the potential cut in this program.

Well, guess what? As I have pointed out in the past, that’s an oil subsidy. The reality is that the vast majority of oil subsidies in the world are consumer subsidies like this. The people who get angry about oil subsidies are sometimes the same people that complain about cutting these kinds of subsidies — because they don’t recognize them as oil subsidies.

Subsidies aren’t direct payments to oil companies, even though that’s what most people envision. So, they get angry about something they misunderstand.

That’s the first point. But a more important question to ponder is “What are the consequences of letting the U.S. shale oil industry go bankrupt?”

Related: Oil Prices Slide As Saudi Arabia Confirms Another Export Boost

Look, you may think the U.S. oil industry deserves to go bankrupt. You may believe we should all be driving around in wind-powered electric vehicles or riding bicycles. But that’s not the world we live in today.

Should we use less oil? Yes. And we will over time. But right now the U.S. still uses a lot of oil, and we will continue to do so for several years, even as we transition to electric vehicles.

The real consequences of letting the U.S. shale industry fail is to hand global control of oil production back to Saudi Arabia. Millions of Americans will lose jobs, domestic oil production will fall, and our oil imports will soar. Saudi Arabia will then be free to once again withhold production to drive up the price.

Some producers will go bankrupt as a result of the current crash. And those that made really poor decisions should go bankrupt. But letting too much of the industry fail will begin toppling dominoes that will have enormous ramifications on the U.S. economy and on our national security.

Russia is going to make decisions about the interest of its domestic oil industry. Saudi Arabia is going to do the same, and it has a powerful instrument with which to do so through Saudi Aramco.

The U.S. must do the same, but there are those in government that seem like they would be glad to see the oil industry go out of business. Unlike Russia and Saudi Arabia, our oil industry has decidedly mixed support from the federal government.

The American economy runs on energy. The energy industry is a matter of national security. We can’t give up control of our energy security to Saudi Arabia. That is the consequence of letting this price war destroy the U.S. oil industry.

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https://oilprice.com/Energy/Energy-General/Oil-Stocks-Havent-Hit-The-Bottom-Just-Yet.html
 

Oil Stocks Haven’t Hit The Bottom Just Yet

By Robert Rapier - Mar 31, 2020, 5:00 PM CDT

It’s hard to overstate the nature of what has happened in the oil markets since the beginning of the coronavirus (COVID-19) outbreak in early January. At that time, supply and demand looked reasonably balanced. OPEC and its partners (primarily Russia) were taking action to make sure that balance was maintained. I felt confident enough in the fundamentals to predict that oil prices wouldn’t fall below $50/bbl this year. But since then we have experienced the fastest and most dramatic change in oil market conditions that I have ever seen in my career. And when a market sell-off turns into panic, the market moves can become irrational.

As John Maynard Keynes once said, “The market can stay irrational longer than you can stay solvent.” Thus, it’s prudent to apply a great deal of caution in the current environment.

Sure, Energy Stocks Are Cheap

Oil is the most important commodity in the world. It’s still how our supply chains and critical services are moving around. But oil production has expanded so much in recent years, we suddenly found supply way in front of demand as people have stopped moving about. Oil prices — and the energy sector — were crushed in response (with a strong nudge from Russia and Saudi Arabia).

Energy stocks look extremely cheap — and they are. But it doesn’t mean they won’t get cheaper.

The challenge is that the fundamentals are changing so rapidly that we don’t even have a good handle on what those fundamentals currently are. When this sell-off began, I said that it could be 10 percent, 25 percent, or 50 percent — we just didn’t know because we are dealing with a moving target.

What seems undeniable is that we still have a period of bad news in front of us before conditions begin to improve.

Advice for Investors

The collapse of oil demand, the overall decline in the stock market, – and most importantly – the price war that Russia and Saudi Arabia have started have crushed the energy sector. Investors aren’t discriminating between good and bad companies (recognizing that at $20 oil, you would be hard-pressed to find good oil and gas companies). The entire sector is on sale.

Related: Oil Hits $20 For The First Time In 18 Years

  With oil prices all the way down into the $20s, Russia may eventually decide that the pain is too great and come back to the table. But in the interim, many shale oil producers will probably be forced out of business.

What should investors do now? It may be instructive to review what happened in 2015 as oil prices collapsed. The hardest hit were shale oil producers, especially those with a lot of debt. There will likely be another wave of bankruptcies.

So, I would only invest new money into the energy sector with the utmost caution.

ConocoPhillips, which I have previously recommended, isn’t primarily a shale oil producer. The company has retooled to break even at $40 oil (although we are a long way from there now). ConocoPhillips can sustain low prices longer than other producers. COP will be one of the last pure oil companies standing, but its share price has taken a gut punch from the collapse in oil prices.

Pipeline companies, especially master limited partnerships (MLPs), were in a bubble in 2014. Their values collapsed along with oil prices, but the underlying fundamentals got stronger for those that weren’t highly leveraged.

MLPs like Enterprise Products Partners even increased their distributions throughout the oil price collapse. It will take a long bear market before the strongest MLPs have to think about cutting distributions. But some of the highly leveraged MLPs are already announcing distribution cuts.

Related: An Oilman’s Plea To President Trump

Refiners fared well the last time oil prices collapsed. They make their money on the price differential between crude oil and finished products. They often make their biggest profits when oil prices are falling. That’s what we saw in 2015, when Valero returned 43 percent as other energy companies were plummeting. Conditions are different today with gasoline demand collapsing, but refiners should be in a better overall position than oil producers.

The large integrated companies have sufficiently deep pockets to survive the challenging times ahead. Many of the oil supermajors have gone decades without cutting dividends, despite enduring several challenging oil markets.

The bottom line, however, is that we just don’t know how bad this is going to get. The oil markets are certainly not alone in rapidly shedding market capitalization. The recent drop in the S&P 500 was the fastest since the 1987 market crash. That should have the full attention of investors.

If you have cash on the sidelines, I would be extremely cautious in chasing these energy stocks down. We can’t yet see the light at the end of the tunnel. When investing becomes more akin to gambling, it’s best to only invest money you can truly afford to lose.

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https://oilprice.com/Energy/Energy-General/1-Oil-Saudi-Arabias-Attempt-To-Crush-US-Shale.html
 

$1 Oil: Saudi Arabia's Attempt To Crush U.S. Shale

By Tom Kool - Apr 01, 2020, 12:00 PM CDT

After having crashed nearly 70 percent in the first three months of 2020, benchmark WTI prices are trying to form a bottom around $20 per barrel. 

But this psychological threshold is looking increasingly shaky as global crude storage facilities are filling up at an unprecedented pace. OPEC and its partners officially ended their output cut deal today, following the words of Russian Energy Minister Novak that every producer is ‘’free to pump at will’’. 

With a flood of physical crude set to hit the market, it will take weeks, not months, for global oil storage space to run out. The storage problem could grow even worse as refining capacity is coming offline due to coronavirus health risks and in some cases a (very) negative crack spread caused by a double whammy of low fuel demand and crude oversupply.

Oilprice.com’s Alex Kimani wrote on Saturday that refining crack spreads are now negative in both US and Asian markets. This means that refiners must pay for every barrel they refine into fuel, which will inevitably lead to even lower demand for crude feedstock.

March has been a horrible month for oil producers, but April could get even worse. Related: An Oilman’s Plea To President Trump

The gap between supply and demand in oil markets is expected to grow increasingly pronounced this month. Trading giant Trafigura’s chief economist now expects demand for crude to fall by 30 million bpd in April as around 3 billion people remain under lockdown worldwide.

In the meantime, OPEC producers Saudi Arabia and the UAE are preparing to flood European and Asian markets with crude. Bloomberg reported that the Kingdom’s supply has now officially surpassed the 12 million bpd mark, compared to 9.7 million bpd. While some analysts remain doubtful that the kingdom is able to produce anywhere close to 12 million bpd, Riyadh is already resorting to drawing crude from its inventories to boost exports, and Saudi authorities have instructed Aramco to ramp up supply to 13 million bpd.  

Saudi Arabia’s ally the UAE has also vowed to increase production. State-owned ADNOC said on March 11 that it was looking to increase production to 4 million bpd, one million barrels per day higher than it produced under the OPEC+ output deal. 

To make matters worse, Iraq said on Tuesday that it would raise production by 200,000 bpd to 4.8 million bpd according to Bloomberg. 

It seems then that Riyadh is defying pressure from Washington and Moscow to halt its production surge. Thus far, the Trump Administration hasn’t taken any serious action to force the Saudis to stop the oil price war, but according to Reuters, ‘’U.S. President Donald Trump said on Tuesday he would join Saudi Arabia and Russia, if need be, for talks about the fall in oil prices’’ Related: Oil Markets Are On The Brink Of Armageddon

The question then is whether the Saudis will be successful in their high-risk gamble for market share. Before starting the oil war, Riyadh surely anticipated that the extra barrels it would free up for exports would sell at a steep discount to Russian and US crude grades, but what it didn’t expect is that there may not be any demand for its additional crude as refiners simply can’t handle any more feedstock (and probably won’t be able to store it either).

Bloomberg’s Ellen Wald says that the current Saudi strategy could come at a huge cost for the kingdom, ‘’Leftover, unsold oil sitting in tankers off the coast of Saudi Arabia will make the kingdom look weak. Aramco and the kingdom would face severe revenue drops…undermining the overall economy and the monarchy’s political dominance’’.

Whether or not the Saudis manage to capture market share, U.S. producers are set to lose the most. Oil prices in many states have fallen into the teens and in some states we are already seeing oil selling for $1 per barrel, causing producers to shut-in a huge number of wells as demand for their crude is slowly drying up.

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https://oilprice.com/Geopolitics/International/Has-Russia-Reached-Its-Limit-In-The-Oil-Price-War.html
 

Has Russia Reached Its Limit In The Oil Price War?

By RFE/RL staff - Apr 03, 2020, 4:00 PM CDT

When Vladimir Putin was given a dire forecast of the economy under the cloud of a crippling coronavirus pandemic and a sharp fall in global demand for petroleum, the Russian president was much less bullish about his country's prospects in a price war with oil-producing rival Saudi Arabia. "For our economy, yes definitely, this is a very serious challenge," Putin told Audit Chamber head Aleksei Kudrin on April 1, adding that the United States, which recently surpassed Russia and Saudi Arabia to become the world's largest oil producer, would also suffer.

It was a big step back from the line being floated just two weeks ago when, despite Russia's economic dependence on natural resources, Moscow engaged in a bit of chest-thumping about its chances in a price war, arguing that Russia was in a stronger position than its main competitors to ride it out.

But that was before the true impact of the coronavirus on the global economy was understood, and before Kudrin -- a former finance minister and trusted ally -- told Putin in a government meeting held by video that the Russian economy could decline this year by between 3 and 5 percent.

And that was a moderate outlook, according to Kudrin, who went on to warn that the situation could be as bad as the nearly 8 percent decline the country suffered in 2009 during the financial crisis.

When faced with slumping oil demand as the global economy suffered from the effects of the coronavirus pandemic, Riyadh's demands for output cuts were refused by fellow OPEC+ member Moscow. After walking away from the table, the Saudis instead took the surprising route of increasing oil output, causing the largest one-day drop in prices in nearly three decades.

Putin's comment is one sign that Russia, which always expressed openness to continue negotiations with Riyadh, may be keen on coming to an agreement. "Today's acknowledgement by Putin shows Russia is interested in the dialogue process and wants to go ahead with it," Rauf Mammadov, an energy analyst at the Middle East Institute in Washington, told RFE/RL on April 1.

High-Stakes Game

From the beginning, the price war has raised questions about who would cave first: Moscow, Riyadh, or U.S. production, which depends on shale-oil producers that have gained market share at the expense of Russia and Saudi Arabia but require higher oil prices to stay in business.

Russia is now preparing to ramp up spending to support millions of citizens and thousands of companies affected by quarantines and shutdowns. The Kremlin has thus far announced an increase of spending by $17.5 billion to counter the outbreak.

Related: $1 Oil: Saudi Arabia's Attempt To Crush U.S. Shale But according to Kudrin, the country may need to spend 5 percent of gross domestic product -- or about $70 billion -- to combat the impact of the coronavirus, which Russia has officially said has infected more than 3,500 people, but which skeptics suggest is a low-ball figure.

Those costs will be difficult to cover if oil prices are low -- but on April 2, the price of Russia's Urals crude blend fell below $11 a barrel, the lowest since Putin came to power two decades ago. The international benchmark Brent crude, meanwhile, was going for just over $26 a barrel on April 2, whereas Russia depends on a price of about $40 a barrel to balance its budget.

Russia as of March 20 had $551 billion in foreign-currency reserves at its disposal, although economists suggested that Putin would prefer not to tap into them. In just one week, however, those reserves had already fallen by $30 billion.

Even before Putin's government meeting, there were signs that Russia was having second thoughts about engaging in a price war with Riyadh, with Energy Minister Aleksandr Novak saying earlier on April 1 that Russia would not increase oil production in April, a reversal of earlier comments by officials.

Analysts have said that Saudi Crown Prince Muhammad bin Salman's surprise decision to increase oil production was intended to get Putin back to the negotiating table.

And there is reason to believe that the Saudis might not want to keep the price war going either. Like Russia, the sharp decline in the price and volume of oil threatens Saudi Arabia's aggressive spending programs aimed at lifting living standards and diversifying its economy.

But Riyadh needs a much higher Brent crude price to balance its budget, nearly $80 per barrel, analysts have said. And while Saudi Arabia has $480 billion in foreign-currency reserves to lean on, it has already announced $13 billion in spending to deal with the lower budget revenue.

"Despite the bravado that we have been hearing on both sides, this is not about who has the lowest cost of production and higher profitability. This is about funding budgets, and for both Russia and Saudi budget expansion has been significant in recent years," Chris Weafer, the co-founder of Macro Advisory in Moscow, told RFE/RL on March 28. "The reality is that both of them need a deal to put a better price support in place."

Trump Wants A Deal

The other oil-producing elephant in the room is the United States, which has seen its shale-oil producers suffer as a result of the price dispute.

U.S. President Donald Trump, who has called the price war "crazy," has been trying to accelerate talks between Russia and Saudi Arabia while members of Congress have been calling for sanctions and tariffs if they don’t find an agreement.

Related: An Oilman’s Plea To President Trump

Trump has said he recently spoke with the leaders of both countries and that Moscow and Riyadh were "going to get together" but he gave no further details. He expressed optimism on April 1 that an agreement was near.

"I think that Russia and Saudi Arabia, at some point, are going to make a deal in the not-too-distant future because it's very bad for Russia. It's very bad for Saudi Arabia," Trump said.

The U.S. president reiterated that hope on April 2, saying in a tweet that he expected Russia and Saudi Arabia to cut 10 million barrels a day, though it was unclear if he was referring just to the two countries or to OPEC+, the alliance of two dozen oil-producing states that Moscow and Riyadh lead. It was also unclear if U.S. companies would be involved in the output cut.

Just minutes after Trump's tweet, Saudi Arabia called for an emergency meeting of OPEC+ members.

Macro Advisory co-founder Weafer said he expected Moscow and Riyadh to find a short-term solution to their dispute that would get them through the crisis period.

The Middle East Institute's Mammadov suggested that Russia and Saudi Arabia could reach an agreement with other countries through the Group of 20 (G20) format, as it would offer both Putin and Prince Salman a way to claim victory. "It would eliminate the face-saving confrontation between Saudi Arabia and Russia because it's not about the old OPEC+ deal" that they fought over, he said.

Trump will meet with U.S. oil executives on April 3 to discuss measures to support the domestic market, including possible tariffs on oil imports from Russia and Saudi Arabia as well as American production cuts.

Analysts have said that Riyadh and Moscow will want to see U.S. producers share the burden of stabilizing the market by cutting supply.

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https://oilprice.com/Energy/Energy-General/US-Shale-Ready-To-Fire-Back-In-The-Oil-Price-War.html
 

U.S. Shale Ready To Fire Back In The Oil Price War

By Irina Slav - Apr 03, 2020, 11:00 AM CDT

U.S. shale oil companies have started a lobbying campaign with Washington to take a more aggressive stance against Russia and Saudi Arabia to force them to cut oil production, the Financial Times has reported, citing industry sources.

Among the measures, according to the sources, is the proposal to introduce tariffs on Saudi oil imports and blocking shipments to the massive Motiva refinery, which is majority-owned and operated by Saudi Aramco. One source said that the latter is the idea that has been gaining the most traction. 

Motiva is the largest oil refinery in the United States.

The campaign has taken on former Energy Secretary Rick Perry to help, according to the FT report, and his participation is already making a difference, one industry source has said.

U.S. shale producers were among the hardest-hit players in the industry when Saudi Arabia launched its game of chicken with Russia announcing it would increase oil supply to 12.3 million bpd this month, boosting its production capacity to 13 million bpd. Yet now both Riyadh and Moscow seem to be reconsidering.

Russia said it would not increase production by the 300,000-500,000 bpd it previously said it could add to its average daily from April, while Riyadh has called for an OPEC meeting to discuss next moves as oil price slumped below $30 a barrel.

Yesterday, the benchmarks got a breather after, in a tweet, President Trump said he hoped and expected Russia and Saudi Arabia would reach an agreement to collectively cut between 10 and 15 million bpd. While it is highly unlikely the two would agree to such a massive cut without anyone else - notably the U.S. - taking part, too, the tide may be changing. Related: Iraq On The Brink Of Civil War As Oil Revenues Evaporate

The current oil price is too low even for Russia, who claims to have the most favorable production cost/breakeven ratio among the world’s top three producers. Saudi Arabia, while the lowest-cost producer, needs oil at more than $80 to break even in terms of its budget, while U.S. shale producers have breakevens more than double the current price of WTI. The top Russian companies, on the other hand, could remain profitable even with Urals at $15 thanks to a free-floating currency and a flexible tax regime. Russia’s budget for 2020 is based on an oil price of a little over $42 a barrel.

The Wall Street Journal has reported, citing OPEC officials, that the cartel and Russia would be meeting Monday to discuss prices and are thinking of inviting U.S. producers to the talks.

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https://www.thebaghdadpost.com/en/Story/47757/Trump-brokers-deal-with-Russia-KSA-to-halt-price-rout
 

Trump brokers deal with Russia, KSA to halt price rout

U.S President Donald Trump said on Thursday he had brokered a deal with top crude producers Russia and Saudi Arabia to cut output and arrest an oil price rout amid the global coronavirus pandemic, though details of how cuts would work were unclear.

Trump said the two nations could cut output by 10 to 15 million barrels per day (bpd) - an unprecedented amount representing 10% to 15% of global supply, and one that would require the participation of nations outside of OPEC and its allies.

A senior U.S. administration official familiar with the matter said Trump would not formally ask U.S. oil companies to contribute to the production cuts, a move forbidden by U.S. antitrust legislation.

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https://oilprice.com/Energy/Oil-Prices/OPEC-Discuss-10-Million-Bpd-Cut-Involving-Other-Producers.html
 

OPEC+ Discuss 10 Million Bpd Cut Involving Other Producers

By Tsvetana Paraskova - Apr 03, 2020, 10:00 AM CDT

Oil producers from the OPEC+ coalition are discussing the possibility of slashing global crude oil production by 10 million bpd in cooperation with producers from outside the group, a source with OPEC told Reuters on Friday, a day after U.S. President Donald Trump said he expected a massive cut from Saudi Arabia and Russia.

A final figure up for discussion would depend on the outcome of the meeting of President Trump with U.S. oil firms later on Friday and over the weekend, Reuters’ source said.

After days of speculation about President Trump getting involved in the Saudi-Russian oil price war that began claiming its first U.S. shale victims, President Trump said on Thursday that he had spoken with the Saudi Crown Prince and Russia, and hoped and expected that Saudi Arabia and Russia would “cut back approximately 10 Million Barrels, and maybe substantially more,” sending oil prices soaring by 20 percent.

President Trump later on Thursday in a coronavirus press briefing added that the 10 million bpd figure had actually been discussed in the conversations and that it could be as much as 15 million bpd.

Saudi Arabia called on Thursday for an urgent meeting of the OPEC+ coalition and “another group of countries” to try to find “a fair solution” to the current market imbalance.  

The emergency meeting will be held via video conference on Monday, April 6, non-OPEC producer Azerbaijan said on Friday, adding it had been invited to take part in the meeting initiated by Saudi Arabia after talks mediated by President Trump.

However, analysts see many obstacles to a global production cut deal of the magnitude President Trump has touted because of the tall order to get a group of many diverse producers together for a collective cut.

Saudi Arabia is signaling it will discuss cuts if more countries join, including the United States.

The other issue with such a cut is that the current loss of demand is probably more than twice the 10-million-bpd production cut.

After news of the OPEC+ meeting on Monday emerged, oil prices reversed earlier losses that were created by the media's skepticism about a deal, jumping at 7:15 a.m. EDT on Friday, with Brent Crude soaring 8.18 percent at $32.39, and WTI Crude up 4.66 percent at $26.50.  

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https://oilprice.com/Latest-Energy-News/World-News/IEA-Oil-Price-Collapse-Could-Leave-50-Million-Jobless.html
 

IEA: Oil Price Collapse Could Leave 50 Million Jobless

By Tsvetana Paraskova - Apr 03, 2020, 3:30 PM CDT

The historic oil price crash from last month could lead to as many as 50 million job losses globally in the oil refining and retail industry, Reuters quoted the head of the International Energy Agency (IEA) as saying on Friday.

The oil price collapse is bad for consumers, too, IEA’s Executive Director Fatih Birol said.  

Also on Friday, Birol said that he had held a call with Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman, during which the two “shared our concerns over the situation in global oil markets.”

“I conveyed my hope that at this critical juncture, Saudi Arabia can once again play a stabilising role, via its G20 Presidency,” Birol tweeted on Friday, a day after Saudi Arabia called for an emergency meeting of OPEC+ producers and an additional group of producers to seek solutions to the price crash and the growing global glut.

The video meeting is set for Monday, April 6, and the U.S. oil regulator is also expected to be invited to the talks, which will reportedly include discussion of a massive global production cut of 10 million bpd.

Earlier this week, the IEA said that the world has seen some oil shocks before, but “none has hit the industry with quite the ferocity we are witnessing today.”

“The impacts will be felt throughout oil’s global supply chains and ripple into other parts of the energy sector,” the IEA said on Wednesday. According to the Paris-based agency, some production will grind to a halt, investment cuts will hit the industry, refiners will also come under immense pressure, and there will be a considerable strain in some oil-exporting nations. In addition, the price collapse and the demand collapse will impact the broader energy sector, the global economy, and trade. 

 “Comparisons with previous periods of disruption in oil markets are inevitable but misplaced. The oil industry has never seen anything like 2020,” the IEA said this week.  

 

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https://www.barrons.com/articles/trump-negotiations-with-u-s-oil-signal-a-sudden-shift-from-free-market-production-51585953491?mod=hp_INTERESTS_oil&refsec=hp_INTERESTS_oil
 

Trump Negotiations With U.S. Oil Signal a Sudden Shift From Free-Market Production

Gregory Brew

April 3, 2020 6:38 pm ET

Despite President Donald Trump’s enthusiastic announcement on Thursday that Russia and Saudi Arabia were prepared to cut “10 million barrels,” very little has been made official. As of right now, an agreement is still speculative. The President met with several American oil executives on Friday, and while the outcome remains unknown, a coordinated production cut may still be on the table. 

Talks between major oil producers remain opaque. Navigating the motivations of public figures like Vladimir Putin or Mohammed bin Salman is challenging, to say the least, and Trump has a tendency to disguise the truth in tweets regarding global oil.

Still, reducing global supply by incorporating all major oil producers, including the U.S. , would be a development without parallel or precedent. An agreement of this type would mark the first time that the U.S., historically a major oil producer, bowed to the needs of the global market, rather than using its production power to bend that market to its own will.

Trump has turned “energy dominance” into a major policy platform, and boasted that energy independence had finally been achieved thanks to the new output from the Permian, Marcellus, and Bakken shale-oil fields. American politicians have frequently invoked the elusive dream of “energy independence,” starting with President Richard Nixon’s Project Independence and President Jimmy Carter’s conservation policies, which were aimed to reduce dependence on foreign oil imports. President George W. Bush encouraged new investment in off-shore drilling, while President Barack Obama presided over the shale revolution. 

They were responding to the geopolitical, economic, and social impacts of the 1970’s “oil shocks” that revealed American vulnerability to the forces of global oil, previously masked by a domestic surplus that had by then vanished. The trauma of gas lines, stagflation, energy shortages, and Congressional hearings on oil- company malpractice left an indelible mark on the national psyche, one that would recur through subsequent decades as the U.S. repeatedly went to war in the Middle East and gas prices made national headlines.

Recent spare U.S. supply from oil-shale production created market power, which put pressure on other producers. Saudi Arabia first attempted to impose discipline through an orchestrated policy of overproduction designed to drive U.S. producers out of business. From 2014 to 2016, prices fell from $100 a barrel to $30. 

But the move wasn’t enough to deter American producers, who held on thanks to increasing investment, cost-cutting, and a willingness to take on heavy debt. In November 2016, Saudi Arabia adopted a program of production cuts, effectively ceding ground to shale while leading other OPEC producers, as well as Russia, in matching supply and demand. Prices steadied, while the U.S. continued to ascend as a producer, exceeding records previously set in 1970.

Cuts came to a dramatic end this March, when Russia and Saudi Arabia failed to reach an agreement at the annual OPEC meeting. There ensued a price war, with Riyadh promising to produce at unprecedented levels while Moscow vowed to “pump at will.” The precise motives for this move remain something of a mystery, though it was clearly a step designed to hurt American shale companies, who could not survive a period of sustained low prices. Against the backdrop of the COVID-19 pandemic, prices suffered an historic crash and U.S. producers faced an apocalyptic scenario, with demand set to plummet amid a global glut.

The reaction from the American oil industry and the Trump administration was chaotic. Trump oil advisor and former Continental CEO Harold Hamm floated a bail-out for distressed shale firms. Some called on the Texas Railroad Commission, which had placed quotas on oil production in the 1950’s, to restore controls on output. For the big companies and major lobbying firms, however, the idea of such government action was anathema. Thus by Wednesday, talk had turned instead to U.S. coordinated production cuts, managed with the cooperation of Russia and Saudi Arabia.

Trump, after discussing the idea with Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, eagerly tweeted the news on Thursday that Moscow and Riyadh would cut by 10 million barrels, “and maybe substantially more.” Shortly thereafter, Saudi Arabia called for a snap meeting of OPEC and “other producers” for April 6. Details remain vague, but oil prices responded to the news by climbing 25% on the hope that soon OPEC, Russia, the U.S., and other oil producers would agree on sweeping cuts.

If true, this would constitute an historic change in how the U.S. acts as an oil producer. In the past, the U.S. restrained its own output in order to support higher prices and conserve supply in the event of a sudden interruption. But it has never done so in coordination with other states—and certainly not with the states of OPEC, the bête noire of U.S. oil producers, and a group American firms regularly have criticized for its “cartel-like” practices that interfere with the “free market.” 

A coordinated production cut would make sense for all involved, so long as the reductions are evenly distributed—a point Saudi Arabia is likely to insist upon, as it has often shouldered the burden of past production cuts. But the American energy industry may not cooperate with the Trump administration’s plans. Shutting off all output in the Gulf of Mexico, for example, may prove a non-starter. 

If production cuts do go through, it would mark a profound shift: the moment when the U.S. joined the global community of oil-producing states as a peer, rather than an independent actor or potential energy hegemon.