Oil prices plunge as much as 30% after OPEC deal failure sparks price war - CNBC

Prince Abdulaziz bin Salman Al-Saud, Minister of Energy of Saudi Arabia arrives for the 178th meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna, Austria, on March 6, 2020.

Alex Halad | AFP | Getty Images

Oil prices plunged after OPEC's failure to strike a deal with its allies regarding production cuts caused Saudi Arabia to slash its prices as it reportedly gets set to ramp up production, leading to fears of an all-out price war.

U.S. West Texas Intermediate crude and international benchmark Brent crude are tracking for their worst day since 1991.

WTI plunged 22%, or $9.15, to trade at $32.13 per barrel. WTI is on pace for its second worst day on record, and earlier fell to a session low of $30, a level not seen since Feb. 2016. 

International benchmark Brent crude futures were down 21%, or $9.74, to trade at $35.52 per barrel. Brent futures dove more than 30% at the low to $31.02.

"This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction," Again Capital's John Kilduff said. "The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the U.S shale patch."

On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

"We believe the OPEC and Russia oil price war unequivocally started this weekend when Saudi Arabia aggressively cut the relative price at which it sells its crude by the most in at least 20 years," Goldman Sachs analyst Damien Courvalin said in a note to clients Sunday. "The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus," the firm added.

Goldman cut its second and third quarter Brent forecast to $30 per barrel, and said that prices could dip into the $20s.

Saudi Arabia's price cut followed a breakdown of talks in Vienna last week. On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day starting in April and extending until the end of the year. But OPEC ally Russia rejected the additional cuts when the 14-member cartel and its allies, known as OPEC+, met on Friday.

The meeting also concluded with no directive about the production cuts that are currently in place but set to expire at the end of the month. This effectively means that nations will soon have free rein over how much they pump.

"As from 1 April we are starting to work without minding the quotas or reductions which were in place earlier," Russian Energy Minister Alexander Novak told reporters Friday at the OPEC+ meeting in Vienna, adding, "but this does not mean that each country would not monitor and analyze market developments." 

Oil prices have already moved sharply lower this year as the coronavirus outbreak has led to softer demand for crude. A potential supply glut could pressure prices further.

"Both events – coronavirus and OPEC+ falling apart were not expected or priced into the market a month ago," said Rebecca Babin, senior equity trader for CIBC Private Wealth Management. She said the key things to watch going forward are whether or not Saudi Arabia and Russia reach a "Hail Mary" deal, and if not, how quickly U.S. supply is shut in to support prices.

"There is still significant uncertainty, but the commodity market is not waiting around to find out if miracles can happen," she added.

The XLE, which tracks the energy sector, and the XOP, which tracks oil and gas companies, were down 15% and 23%, respectively, during Monday's premarket trading.

The unfolding of events is reminiscent of 2014 when Saudi Arabia, Russia, and the U.S. competed for market share in the oil industry. As production escalated, prices plummeted. Some see prices heading back to those lows. 

″$20 oil in 2020 is coming," Ali Khedery, formerly Exxon's senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. "Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc - may prove existential 1-2 punch when paired with COVID19."

But others, including Eurasia Group, believe that Saudi Arabia and Russia will eventually come to an agreement. 

"The most likely outcome of the failure of the Vienna talks is a limited oil price war before the two sides agree on a new deal," analysts led by Ayham Kamel said in a note to clients Sunday. The firm puts the chances of an eventual agreement at 60%. 

Vital Knowledge founder Adam Crisafulli said Sunday that oil "has become a bigger problem for markets than the coronavirus," but also said that he does not foresee prices falling to the Jan. 2016 lows. 

"Saudi Arabia can't tolerate an oil depression – the country's fiscal breakeven oil prices remain very high, Saudi Aramco is now a public company, and MBS's grip on power isn't yet absolute. As a result, the [government] won't be so cavalier in sending oil back into the $30s (or even lower)," he said in a note to clients Sunday.

— CNBC's Michael Bloom, Eustance Huang, Nate Rattner and Natasha Turak contributed reporting.

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2020-03-09 13:30:38Z
52780654173862

Oil prices plunge as much as 30% after OPEC deal failure sparks price war - CNBC

Prince Abdulaziz bin Salman Al-Saud, Minister of Energy of Saudi Arabia arrives for the 178th meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna, Austria, on March 6, 2020.

Alex Halad | AFP | Getty Images

Oil prices plunged after OPEC's failure to strike a deal with its allies regarding production cuts caused Saudi Arabia to slash its prices as it reportedly gets set to ramp up production, leading to fears of an all-out price war.

U.S. West Texas Intermediate crude and international benchmark Brent crude are tracking for their worst day since 1991.

WTI plunged 22%, or $9.15, to trade at $32.13 per barrel. WTI is on pace for its second worst day on record, and earlier fell to a session low of $30, a level not seen since Feb. 2016. 

International benchmark Brent crude futures were down 21%, or $9.74, to trade at $35.52 per barrel. Brent futures dove more than 30% at the low to $31.02.

"This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction," Again Capital's John Kilduff said. "The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the U.S shale patch."

On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

"We believe the OPEC and Russia oil price war unequivocally started this weekend when Saudi Arabia aggressively cut the relative price at which it sells its crude by the most in at least 20 years," Goldman Sachs analyst Damien Courvalin said in a note to clients Sunday. "The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus," the firm added.

Goldman cut its second and third quarter Brent forecast to $30 per barrel, and said that prices could dip into the $20s.

Saudi Arabia's price cut followed a breakdown of talks in Vienna last week. On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day starting in April and extending until the end of the year. But OPEC ally Russia rejected the additional cuts when the 14-member cartel and its allies, known as OPEC+, met on Friday.

The meeting also concluded with no directive about the production cuts that are currently in place but set to expire at the end of the month. This effectively means that nations will soon have free rein over how much they pump.

"As from 1 April we are starting to work without minding the quotas or reductions which were in place earlier," Russian Energy Minister Alexander Novak told reporters Friday at the OPEC+ meeting in Vienna, adding, "but this does not mean that each country would not monitor and analyze market developments." 

Oil prices have already moved sharply lower this year as the coronavirus outbreak has led to softer demand for crude. A potential supply glut could pressure prices further.

"Both events – coronavirus and OPEC+ falling apart were not expected or priced into the market a month ago," said Rebecca Babin, senior equity trader for CIBC Private Wealth Management. She said the key things to watch going forward are whether or not Saudi Arabia and Russia reach a "Hail Mary" deal, and if not, how quickly U.S. supply is shut in to support prices.

"There is still significant uncertainty, but the commodity market is not waiting around to find out if miracles can happen," she added.

The XLE, which tracks the energy sector, and the XOP, which tracks oil and gas companies, were down 15% and 23%, respectively, during Monday's premarket trading.

The unfolding of events is reminiscent of 2014 when Saudi Arabia, Russia, and the U.S. competed for market share in the oil industry. As production escalated, prices plummeted. Some see prices heading back to those lows. 

″$20 oil in 2020 is coming," Ali Khedery, formerly Exxon's senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. "Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc - may prove existential 1-2 punch when paired with COVID19."

But others, including Eurasia Group, believe that Saudi Arabia and Russia will eventually come to an agreement. 

"The most likely outcome of the failure of the Vienna talks is a limited oil price war before the two sides agree on a new deal," analysts led by Ayham Kamel said in a note to clients Sunday. The firm puts the chances of an eventual agreement at 60%. 

Vital Knowledge founder Adam Crisafulli said Sunday that oil "has become a bigger problem for markets than the coronavirus," but also said that he does not foresee prices falling to the Jan. 2016 lows. 

"Saudi Arabia can't tolerate an oil depression – the country's fiscal breakeven oil prices remain very high, Saudi Aramco is now a public company, and MBS's grip on power isn't yet absolute. As a result, the [government] won't be so cavalier in sending oil back into the $30s (or even lower)," he said in a note to clients Sunday.

— CNBC's Michael Bloom, Eustance Huang, Nate Rattner and Natasha Turak contributed reporting.

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2020-03-09 12:38:03Z
52780654173862

The entire US yield curve plunged below 1% for the first time ever. Here's why that's a big red flag for .. - Business Insider

Foto: Mario Tama/Getty Images

• Investors bought up US government bonds on Monday in response to the growing coronavirus threat and signs of a brutal price war between oil producers.
• The entire US Treasury yield curve fell below 1% for the first time ever as yields on the benchmark 10-year and 30-year bonds slumped to record lows.
• „It signals the market is worried about a global recession and aggressive monetary easing by the Fed,“ one analyst told Business Insider.
• The yield declines came as investors ditched stocks, commodities, and cryptocurrencies and braced for the Federal Reserve to make further cuts to interest rates.
• Visit Business Insider’s homepage for more stories.

Investors plowed cash into US government bonds on Monday as they braced for the global economic fallout from coronavirus and a brutal oil-price war after Saudi Arabia and Russia failed to agree on output cuts.

Surging demand drove up the price of US Treasuries, dragging down their yields and sending the entire yield curve below 1% for the first time ever. The yield on the benchmark 10-year Treasury touched a record low of less than 0.4%, while the 30-year Treasury yield slid below 1% – an unprecedented event.

The falling curve underscores the worsening outlook for the world economy.

„It signals the market is worried about a global recession and aggressive monetary easing by the Fed,“ Neil Wilson, chief market analyst for Markets.com, told Business Insider in an email on Monday.

„It will eventually settle down and the real risk is when rates snap back,“ he added.

Taking cover

The fall in bond yields is a product of investors fleeing volatile markets and seeking shelter in government bonds. They sold off oil and ditched stocks, commodities such as silver and soybeans, and even cryptocurrencies on Monday as they worried about coronavirus hitting global demand and an oil-supply glut.

Moreover, the fact that investors are willing to buy bonds offering record-low yields underlines how worried they are about a global slowdown and a widescale sell-off of higher-risk assets.

Coronavirus – which causes a flu-like disease called COVID-19 – has infected more than 110,000 people, killed at least 3,800, and spread to more than 100 countries. It continues to disrupt global supply chains, interfere with businesses – factories are slashing output, events are being canceled, and retailers are temporarily closing or reducing their opening hours – and hammer demand as consumers stay home.

The epidemic’s sweeping impacts led the Organization of Economic Cooperation and Development (OECD) to warn global growth could slow to 1.5% this year – half the rate it projected in November. Similarly, the International Monetary Fund expects global growth of less than 2.9%, after predicting 3.3% in January.

Bracing for Fed action

When interest rates fall, bond prices tend to rise – driving down yields – as investors chase a better return by moving money into government bonds instead of keeping their cash in the bank and collecting paltry interest.

The scale of the latest yield declines suggests that investors expect the Federal Reserve to cut interest rates again. The US central bank made an emergency cut of 50 basis points to interest rates last week to shore up the economy against coronavirus.

Indeed, futures signal that investors put the odds of another cut this month at 100%, according to Reuters. With rates already at 1% to 1.25%, the Fed has little scope for further cuts before they hit zero. Against that backdrop, a 30-year Treasury yield of about 0.9% starts to look enticing.

The yield declines also suggest investors are expecting the Fed to boost liquidity in market by ramping up its bond purchases, which would drive up their prices and lower their yields.

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2020-03-09 12:12:37Z
52780653851489

Oil prices plunge as much as 30% after OPEC deal failure sparks price war - CNBC

Prince Abdulaziz bin Salman Al-Saud, Minister of Energy of Saudi Arabia arrives for the 178th meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna, Austria, on March 6, 2020.

Alex Halad | AFP | Getty Images

Oil prices plunged after OPEC's failure to strike a deal with its allies regarding production cuts caused Saudi Arabia to slash its prices as it reportedly gets set to ramp up production, leading to fears of an all-out price war.

U.S. West Texas Intermediate crude is on track for its worst day since January 1991, and second worst day on record after plunging 22%, or $9.15, to trade at $32.13 per barrel. Earlier WTI hit a session low of $27.34 per barrel. International benchmark Brent crude futures were down 21%, or $9.74, to trade at $35.52 per barrel. Brent futures dove more than 30% at the low to $31.02.

"This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction," Again Capital's John Kilduff said. "The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the U.S shale patch."

On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

"We believe the OPEC and Russia oil price war unequivocally started this weekend when Saudi Arabia aggressively cut the relative price at which it sells its crude by the most in at least 20 years," Goldman Sachs analyst Damien Courvalin said in a note to clients Sunday. "The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus," the firm added.

Goldman cut its second and third quarter Brent forecast to $30 per barrel, and said that prices could dip into the $20s.

Saudi Arabia's price cut followed a breakdown of talks in Vienna last week. On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day starting in April and extending until the end of the year. But OPEC ally Russia rejected the additional cuts when the 14-member cartel and its allies, known as OPEC+, met on Friday.

The meeting also concluded with no directive about the production cuts that are currently in place but set to expire at the end of the month. This effectively means that nations will soon have free rein over how much they pump.

"As from 1 April we are starting to work without minding the quotas or reductions which were in place earlier," Russian Energy Minister Alexander Novak told reporters Friday at the OPEC+ meeting in Vienna, adding, "but this does not mean that each country would not monitor and analyze market developments." 

Oil prices have already moved sharply lower this year as the coronavirus outbreak has led to softer demand for crude. A potential supply glut could pressure prices further.

"Both events – coronavirus and OPEC+ falling apart were not expected or priced into the market a month ago," said Rebecca Babin, senior equity trader for CIBC Private Wealth Management. She said the key things to watch going forward are whether or not Saudi Arabia and Russia reach a "Hail Mary" deal, and if not, how quickly U.S. supply is shut in to support prices.

"There is still significant uncertainty, but the commodity market is not waiting around to find out if miracles can happen," she added.

The XLE, which tracks the energy sector, and the XOP, which tracks oil and gas companies, were down 15% and 23%, respectively, during Monday's premarket trading.

The unfolding of events is reminiscent of 2014 when Saudi Arabia, Russia, and the U.S. competed for market share in the oil industry. As production escalated, prices plummeted. Some see prices heading back to those lows. 

″$20 oil in 2020 is coming," Ali Khedery, formerly Exxon's senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. "Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc - may prove existential 1-2 punch when paired with COVID19."

But others, including Eurasia Group, believe that Saudi Arabia and Russia will eventually come to an agreement. 

"The most likely outcome of the failure of the Vienna talks is a limited oil price war before the two sides agree on a new deal," analysts led by Ayham Kamel said in a note to clients Sunday. The firm puts the chances of an eventual agreement at 60%. 

Vital Knowledge founder Adam Crisafulli said Sunday that oil "has become a bigger problem for markets than the coronavirus," but also said that he does not foresee prices falling to the Jan. 2016 lows. 

"Saudi Arabia can't tolerate an oil depression – the country's fiscal breakeven oil prices remain very high, Saudi Aramco is now a public company, and MBS's grip on power isn't yet absolute. As a result, the [government] won't be so cavalier in sending oil back into the $30s (or even lower)," he said in a note to clients Sunday.

— CNBC's Michael Bloom, Eustance Huang, Nate Rattner and Natasha Turak contributed reporting.

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2020-03-09 11:59:48Z
52780654173862

'Punched in the face': Oil, stocks, bond yields, and bitcoin plunge after crude producers signal a brutal.. - Business Insider

• Oil, stocks, bond yields, and cryptocurrencies plunged on Monday.
• The sell-off was sparked by Russia’s refusal to follow other oil producers in reducing output.
• Saudi Arabia now plans to ramp up crude output and slash prices next month.
• Oil prices plunged by more than 25%, US indexes are set to open 5% lower, the entire US Treasury yield curve fell below 1% for the first time, and bitcoin dropped 8%.
• Visit Business Insider’s homepage for more stories.

Oil, stocks, bond yields, and cryptocurrencies plunged on Monday after Russia refused to join other oil producers in cutting output in response to coronavirus, sparking a price war.

Crude oil futures plummeted by more than 30% at the open – the biggest one-day drop since the 1991 Gulf War – on the prospect of an oil glut and softer global demand.

Saudi Arabia plans to boost crude output and offer deep discounts to the US, Europe, and Asia starting next month, the Financial Times reported, citing two people familiar with the kingdom’s oil policy.

„Russia punched investors in the face as it refused to follow OPEC with further production curbs to match the slump in oil demand caused by the coronavirus breakout,“ Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a morning note.

Stock prices tumbled around the world. In London, Royal Dutch Shell fell 15%, BP fell 15%, and Premier Oil fell 57%. In Shanghai, shares in Ningbo Construction, Jilin Sino-Microelectronics, and Xiangtan Electric Manufacturing slumped by at least 10%. In the US, Chevron fell 13%, Exxon Mobil fell 11%, Apple fell 6%, and Tesla fell 10% in pre-market trading.

„The blood really is running in the streets, it’s utter carnage out there,“ Neil Wilson, chief market analyst for Markets.com, said in a morning note.

„Equity markets are hideous today and these kind of moves are to be afraid of as they can lead to aggressive tightening in credit that can spiral into real financial distress,“ he added.

„We don’t know even know what kind of impact the coronavirus will have on the economy yet bond and equity markets are screaming recession.“

Investors sought shelter in US government bonds, pushing up prices and sending yields lower. The benchmark 10-year Treasury yield hit a record low of 0.32%, and the 30-year Treasury yield slid under 1%, taking the entire US yield curve below 1% for the first time in history.

Proponents of cryptocurrencies tout them as hedges in times of volatility, claiming they move independently to conventional financial assets. Investors disagreed, wiping more than $23 billion off the crypto market’s total capitalization – a 9% decline – in less than 24 hours.

„Markets are completely out of luck because there is no good news coming from anywhere which can help the current sell-off,“ Naeem Aslam, chief market analyst at AvaTrade, said in a morning note.

„A real panic mode is on and there is no place to hide for investors,“ he added.

Here’s the market roundup as of 9:40 a.m. in London (5:40 a.m. in New York):

• European equities dropped, with Germany’s DAX down 5.9%, Britain’s FTSE 100 down 6.3%, and the Euro Stoxx 50 down 6.3%.
• Asian indexes slumped. China’s Shanghai Composite fell 3%, Hong Kong’s Hang Seng fell 4.7%, Japan’s Nikkei fell 5.4%, and South Korea’s KOSPI fell 4.2%.
• US stocks are set to open lower. Futures underlying the Dow Jones Industrial Average, S&P 500 and Nasdaq fell between 4.8% and 4.9%.
• Oil prices tanked with West Texas Intermediate down about 20% at $33.20 a barrel and Brent crude down about 19% at $36.70.
• The benchmark 10-year Treasury yield slid to about 0.49%.
• Bitcoin slid 9% to $7,955 and ethereum fell 11% to $205.

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2020-03-09 09:45:33Z
52780654173862

European shares fall 6.2% and Italian stocks fail to trade; BP tanks 18% as oil prices crash - CNBC

European markets tanked on Monday as global investors brace for the spread of the coronavirus and oil prices fall after the collapse of OPEC talks.

The pan-European Stoxx 600 dropped 6.2% in early trade to enter bear market territory, with oil and gas stocks plunging 13.7% to lead losses as all sectors and major bourses fell sharply.

Stocks in Asia saw steep declines on Monday afternoon as oil prices plunged after OPEC failed to strike a deal with its allies on production cuts. The declines in markets in the region were exacerbated by fears surrounding the coronavirus spread.

Oil prices plunged more than 30% after OPEC's failure to strike a deal with its allies regarding production cuts caused Saudi Arabia to slash its prices as it reportedly gets set to ramp up production. That's led to fears of an all-out price war.

Saudi Arabia's price cut followed a breakdown of talks in Vienna last week. On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day starting in April but OPEC ally Russia rejected the additional cuts. With no deal in place when the current one expires at the end of the month, producers could soon pump as much oil as they want.

Coronavirus continues to dominate market sentiment too. More than 106,000 people have now been infected by the virus and more than 3,600 have died globally, according to the latest figures from the World Health Organization. U.S. cases have now topped 500 and at least 21 deaths have been reported.

Meanwhile, the number of confirmed cases in Germany jumped by more than 100 over the weekend and is now up to nearly 800. Italy remains the European country with the worst outbreak, with over 7,000 cases. The U.K. government is holding an emergency meeting Monday to discuss further measures to halt the spread of the virus.

On the data front, Germany releases monthly industrial output figures; there are no major earnings Monday.

Oil stocks capitulate

Energy giant BP plunged 18% and Royal Dutch Shell 21% in early trade as oil stocks took a hammering. Britain's Tullow Oil fell 37%.

TGS-NOPEC shares fell 24.8% while Aker BP and Wood Group both dropped 23%.

— CNBC's Eustance Huang and Pippa Stevens contributed reporting to this story.

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2020-03-09 08:52:38Z
52780654173862

Putin Targets U.S. Fracking With Oil Price War, in New Threat to Trump's Election-Year Economy - Newsweek

Russia has declined to reduce oil exports at the request of Saudi Arabia along with OPEC that led to the biggest decline in oil prices in five years on Friday--causing another headache for the American economy as markets have already seen significant ups and downs due to the ongoing Coronavirus (COVID-19) outbreak.

Now some oil experts are predicting barrel prices as low as $20 within the year, while Russian President Vladimir Putin has voiced confidence that his country can weather out a sustained and significant price reduction. Some analysts have argued that Russia's efforts are intended to counter U.S. shale producers and push back against U.S. sanctions targeting the Nord Stream 2 oil pipeline, which would connect Russian oil directly to Europe.

"The Kremlin has decided to sacrifice OPEC+ to stop U.S. shale producers and punish the U.S. for messing with Nord Stream 2," Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank, told Bloomberg.

Putin told a meeting of finance and energy ministers on Sunday that "we need to be prepared for different scenarios," RT reported. He said that it was unclear how long the situation would continue, but expressed confidence that the Russian economy could deal with any fall out.

Gas is flared as waste from the Monterey Shale formation where gas and oil extraction using hydraulic fracturing, or fracking, is on the verge of a boom on March 22, 2014 near Buttonwillow, California David McNew/Getty

George Friedman, chairman of Geopolitical Futures, told Newsweek that Russia's refusal to cut production had more to do with combatting the economic impact of coronavirus and was not intended to directly target the U.S.

"The Saudi recommendation for cutting production in order to increase prices is something Russia could do only if prices rapidly increase," Friedman said. "But given the downward pressure from the coronavirus, I think the Russians calculated that cutting prices wouldn't stabilize them and refused the Saudi request. It was not intended to hurt the U.S. but to try to protect the Russian economy."

The situation escalated on Friday, as Russia refused to reduce oil output against the wishes of OPEC leaders, arguing that such measures unnecessarily benefited the U.S. Saudi Arabia, which is currently more dependent on maintaining the status quo when it comes to oil pricing, had urged Russia to join with OPEC to make the cuts.

Under Trump, the U.S. has surpassed Saudi Arabia and Russia to become the world's biggest oil producing nation, largely spurred by the expansion of fracking. Saudi Arabia had tried unsuccessfully to flood the oil market and reduce prices drastically to maintain its dominance back in 2014. But U.S. production proved more resilient than the Saudis anticipated.

Some analysts are suggesting that Russia may similarly be underestimating or misunderstanding how the U.S. oil industry will respond.

"While the crash in oil prices that began in late 2014 [due to Saudi Arabia flooding the market] did ultimately result in hundreds of shale producers declaring Chapter 11 bankruptcy, the net result of that process is that most of those companies reorganize themselves and come back with far less debt load," David Blackmon, an independent energy analyst and consultant, wrote for Forbes.

"The strategy also fails to recognize that most producers have already put hedges in place for most of their equity production through the remainder of 2020 and beyond," he noted.

But the Russian effort will certainly have an impact on the oil economy.

″$20 oil in 2020 is coming," Ali Khedery, who formerly worked as Exxon Mobil's senior Middle East advisor and is now the CEO of U.S.-based strategy firm Dragoman Ventures, tweeted on Sunday. "Huge geopolitical implications," he added.

A price dip of as much as Khedery is predicting would be a drop of more than half of what it is today, which would cut deep into oil producers' pockets. With coronavirus already reeking havoc on the stock market, Trump may find it to be more difficult to tout his economic achievements as his re-election campaign moves forward.

The president's re-election campaign did not immediately respond to a request for comment.

Republicans and Trump have consistently pointed to sustained GDP growth, healthy job creation and a booming stock market, as the November election approaches. They have argued that only Trump is positioned to maintain the economy moving forward.

But critics note that the president has failed to deliver the 4 to 5 percent economic growth he promised, pointing out that there were significantly better quarters of economic growth during former President Barack Obama's last four years in office. Additionally, the national debt and deficit has continued to rise substantially, with Trump's signature tax cuts having greatly reduced revenues, while primarily benefiting the wealthiest Americans and corporations.

While Russia would also be impacted by a significant decline in oil prices, it appears to have some room to maneuver before it feels the pain. Saudi Arabia needs a price of about $83 to balance its budget, while Russia only needs a price of about $42. Meanwhile, shale oil producers spend more to extract oil and generally break even with an average price of $68 per barrel.

Shale production has contributed about 10 percent to the current U.S. GDP growth over the past decade, according to a report by the Federal Reserve Bank of Dallas. A collapse in the price of oil could damage shale producers and lead to economic fallout.

As for Russia, the country's leaders are voicing confidence that their economy can withstand tanking prices. Russian Finance Minister Anton Siluano asserted last week that even prices as low as $30 would be fine. "We will finance our spending for four years without problems," he said.

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https://news.google.com/__i/rss/rd/articles/CBMicGh0dHBzOi8vd3d3Lm5ld3N3ZWVrLmNvbS9wdXRpbi10YXJnZXRzLXVzLWZyYWNraW5nLW9pbC1wcmljZS13YXItbmV3LXRocmVhdC10cnVtcHMtZWxlY3Rpb24teWVhci1lY29ub215LTE0OTExMjbSAXZodHRwczovL3d3dy5uZXdzd2Vlay5jb20vcHV0aW4tdGFyZ2V0cy11cy1mcmFja2luZy1vaWwtcHJpY2Utd2FyLW5ldy10aHJlYXQtdHJ1bXBzLWVsZWN0aW9uLXllYXItZWNvbm9teS0xNDkxMTI2P2FtcD0x?oc=5

2020-03-08 16:45:15Z
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