The losers — and even bigger losers — of an oil price war between Saudi Arabia and Russia

  • Most energy analysts have dismissed the idea that Saudi Arabia and Russia’s price war has been specifically designed to target U.S. shale, but the industry is expected to bear the brunt of the pain.
  • Some believe the worst hit from a sharp drop in oil prices will be long-time allies of de facto OPEC leader, Saudi Arabia.
  • “Even at $30, something is going to happen … We are not going to stay here. We can’t,” Chris Weafer, a senior partner at Macro-Advisory, told CNBC.

An intensifying oil price war between Saudi Arabia and Russia has created “very painful” market conditions for the world’s largest crude producers, analysts have told CNBC, with many braced for sliding revenues over the coming months.

International benchmark Brent crude traded at $34.23 Thursday morning, down over 4.4%, while U.S. West Texas Intermediate (WTI) stood at $31.64, around 4% lower. Oil prices have almost halved since the start of the year.

The downturn for crude futures comes shortly after talks between OPEC kingpin Saudi Arabia and non-OPEC leader Russia broke down.

Markets had been hoping for an agreement between Riyadh and Moscow, as well as other OPEC and non-OPEC producers, in order to deepen oil output cuts and prop up prices.

The group’s unexpected failure to reach a consensus on production policy led oil prices to crash on Monday.

President Donald Trump’s surprise announcement Wednesday to ban travel from continental Europe following the WHO’s declaration that the coronavirus can now be described as a pandemic also acted as a catalyst for further oil price losses Thursday morning. 

Most energy analysts have dismissed the idea that Saudi Arabia and Russia’s price war has been specifically designed to target U.S. shale, but the industry is expected to bear the brunt of the pain.

Securing America’s Future Energy (SAFE), a think tank that advocates for reducing U.S. dependence on oil, believes the American oil industry is the loser from the current price war.

“Saudi Arabia claims to be the swing producer to stabilize the market, but mostly they just cause swings that hurt the free market and the ability to compete,” Robbie Diamond, president and CEO of SAFE, said via email shortly after OPEC and non-OPEC allies failed to reach an agreement.

“Our industry and the U.S. economy has no choice but to watch once again as Saudi Arabia tanks the price of oil to suit its domestic priorities,” he added.

Trump initially welcomed the declaration of a price war between Saudi Arabia and Russia, hailing lower oil prices as good news for U.S. consumers.

Saudi Arabia has since signaled its intent to flood the market with crude, unveiling plans Wednesday for state-owned Saudi Aramco to ramp up production to 13 million barrels per day (bpd).

It is thought such a move could prompt a wave of bankruptcies and investment cuts in the U.S. which, in turn, would have a noticeable impact on shale production.

Some believe the worst hit from a sharp drop in oil prices will be long-time allies of de facto OPEC leader, Saudi Arabia.

“My main worry today is not on shale,” Fatih Birol, executive director of the International Agency (IEA), told CNBC’s Steve Sedgwick earlier this week.

“It is mainly on some of the major oil-producing countries who have not — despite the calls from the IEA many, many times — diversified their economies.”

Source: https://www.cnbc.com/2020/03/12/oil-the-losers-of-the-price-war-between-saudi-arabia-and-russia.html

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