Russia & Saudi team up to take out shale oil...?
Discussion
Russia pulled out of OPEC+ at the weekend. It no longer wanted to keep capacity capped and oil prices high (which benefits shale product). This is largely in retaliation for US actions and sanctions around some of its pipeline (Nord Stream2) plans into Europe. It makes shale less profitable.
If Russia ups production it increases foreign currency inflows into the it's coffers. Of course doing this when the world is grappling with Corona may be seen as a tad cynical - probably gets him more leverage. But this is not a concerted action, Russia is doing this unilaterally (of course OPEC may / will follow suit)...
If Russia ups production it increases foreign currency inflows into the it's coffers. Of course doing this when the world is grappling with Corona may be seen as a tad cynical - probably gets him more leverage. But this is not a concerted action, Russia is doing this unilaterally (of course OPEC may / will follow suit)...
stongle said:
Russia pulled out of OPEC+ at the weekend. It no longer wanted to keep capacity capped and oil prices high (which benefits shale product). This is largely in retaliation for US actions and sanctions around some of its pipeline (Nord Stream2) plans into Europe. It makes shale less profitable.
If Russia ups production it increases foreign currency inflows into the it's coffers. Of course doing this when the world is grappling with Corona may be seen as a tad cynical - probably gets him more leverage. But this is not a concerted action, Russia is doing this unilaterally (of course OPEC may / will follow suit)...
Russia's cost of production isn't that much better than shale is it? Russia isn't trying to bugger up shale as it literally can't do that without messing up their own industry. If Russia ups production it increases foreign currency inflows into the it's coffers. Of course doing this when the world is grappling with Corona may be seen as a tad cynical - probably gets him more leverage. But this is not a concerted action, Russia is doing this unilaterally (of course OPEC may / will follow suit)...
It's a daft plan by the Saudis to irritate the russians in response to the OPEC failure over the weekend. It's history repeating itself, their cunning 2015 plan to drive shale out by crashing the oil price failed miserably. There's no terribly good reason why it'll work this time to hurt Russia more than themselves.
AiUI, unlike a conventional oil well shale resources can be turned on and off at will that is its relatively easy to cap a well given the resources are locked in rock. Oil wells can't just be turned off, so price falls US buys oil from Saudi etc, price rises turns its own back on.
This is less about the above more about Russia not playing ball. During last oil crash i think I heard Saudi can afford an oil price of $20 most other nations can not so it kills them unless Saudi cuts back output
This is less about the above more about Russia not playing ball. During last oil crash i think I heard Saudi can afford an oil price of $20 most other nations can not so it kills them unless Saudi cuts back output
isaldiri said:
stongle said:
Russia pulled out of OPEC+ at the weekend. It no longer wanted to keep capacity capped and oil prices high (which benefits shale product). This is largely in retaliation for US actions and sanctions around some of its pipeline (Nord Stream2) plans into Europe. It makes shale less profitable.
If Russia ups production it increases foreign currency inflows into the it's coffers. Of course doing this when the world is grappling with Corona may be seen as a tad cynical - probably gets him more leverage. But this is not a concerted action, Russia is doing this unilaterally (of course OPEC may / will follow suit)...
Russia's cost of production isn't that much better than shale is it? Russia isn't trying to bugger up shale as it literally can't do that without messing up their own industry. If Russia ups production it increases foreign currency inflows into the it's coffers. Of course doing this when the world is grappling with Corona may be seen as a tad cynical - probably gets him more leverage. But this is not a concerted action, Russia is doing this unilaterally (of course OPEC may / will follow suit)...
It's a daft plan by the Saudis to irritate the russians in response to the OPEC failure over the weekend. It's history repeating itself, their cunning 2015 plan to drive shale out by crashing the oil price failed miserably. There's no terribly good reason why it'll work this time to hurt Russia more than themselves.
Art0ir said:
Russia doesn't want to cap oil to p
s off the US.
Saudis are increasing production to ps off the Russians.
Meanwhile Trump will be on Twitter shortly "Low oil prices. Very good for US citizens. Very strong economy. Russians tried to hurt us but will hurt themselves. Sad!"
Err, it was Russia that said it didn't want to cut production further on Friday (per OPEC+), IF they increased production oil px goes down. Since the Russians couldn't agree this with the Saudis; they crashed out of OPEC+. It was the Saudi reaction to go into overdrive on a price war that pushed the markets down 30%. This isn't about a "cap", its the opposite. s off the US.Saudis are increasing production to p
s off the Russians.Meanwhile Trump will be on Twitter shortly "Low oil prices. Very good for US citizens. Very strong economy. Russians tried to hurt us but will hurt themselves. Sad!"
stongle said:
I think more to do with Nord Stream2 etc. Not really an expert on there cost of production, but any lowering of cost per barrel hurts shale. I might be putting 2 and 2 together and getting 5 but the timing looks a tad convenient….
Are you talking about the big price drop or that Russia pulled out of opec? Those are 2 seperate things as I'm sure you know. Nordstream etc might have something to do with Russia not wanting to cap production but ultimately Russia I think given the example of 2015 is pretty aware they cannot significantly affect shale without hurting themselves to a very significant degree. If even Saudi with the lowest production costs in the world couldn't in 2015 drive shale out of business, the Russians with relatively much higher costs (and not miles away from shale iirc especially their artic oil sources) don't have a chance.Olas said:
Oilchange said:
Will this lower petrol prices?
Hashtag:inanutshell
No, cheap oil does not mean cheap petrol. Cheap oil means better margins for oil comapnies.Hashtag:inanutshell
stongle said:
isaldiri said:
stongle said:
Russia pulled out of OPEC+ at the weekend. It no longer wanted to keep capacity capped and oil prices high (which benefits shale product). This is largely in retaliation for US actions and sanctions around some of its pipeline (Nord Stream2) plans into Europe. It makes shale less profitable.
If Russia ups production it increases foreign currency inflows into the it's coffers. Of course doing this when the world is grappling with Corona may be seen as a tad cynical - probably gets him more leverage. But this is not a concerted action, Russia is doing this unilaterally (of course OPEC may / will follow suit)...
Russia's cost of production isn't that much better than shale is it? Russia isn't trying to bugger up shale as it literally can't do that without messing up their own industry. If Russia ups production it increases foreign currency inflows into the it's coffers. Of course doing this when the world is grappling with Corona may be seen as a tad cynical - probably gets him more leverage. But this is not a concerted action, Russia is doing this unilaterally (of course OPEC may / will follow suit)...
It's a daft plan by the Saudis to irritate the russians in response to the OPEC failure over the weekend. It's history repeating itself, their cunning 2015 plan to drive shale out by crashing the oil price failed miserably. There's no terribly good reason why it'll work this time to hurt Russia more than themselves.
https://en.m.wikipedia.org/wiki/Price_of_oil
stongle said:
Art0ir said:
Russia doesn't want to cap oil to ps off the US.
Saudis are increasing production to ps off the Russians.
Meanwhile Trump will be on Twitter shortly "Low oil prices. Very good for US citizens. Very strong economy. Russians tried to hurt us but will hurt themselves. Sad!"
Err, it was Russia that said it didn't want to cut production further on Friday (per OPEC+), IF they increased production oil px goes down. Since the Russians couldn't agree this with the Saudis; they crashed out of OPEC+. It was the Saudi reaction to go into overdrive on a price war that pushed the markets down 30%. This isn't about a "cap", its the opposite. s off the US.Saudis are increasing production to p
s off the Russians.Meanwhile Trump will be on Twitter shortly "Low oil prices. Very good for US citizens. Very strong economy. Russians tried to hurt us but will hurt themselves. Sad!"
Gecko1978 said:
AiUI, unlike a conventional oil well shale resources can be turned on and off at will that is its relatively easy to cap a well given the resources are locked in rock. Oil wells can't just be turned off, so price falls US buys oil from Saudi etc, price rises turns its own back on.
This is less about the above more about Russia not playing ball. During last oil crash i think I heard Saudi can afford an oil price of $20 most other nations can not so it kills them unless Saudi cuts back output
The cost of production is almost irrelevant here - Saudi needs the oil price at much higher levels to balance its budget. Like double the current $35pbl. So Saudi most definitely can't afford the price of oil to be this low for too long. In case you haven't noticed, Russia is yet again sitting on the 2nd largest FX reserves in the World. In addition - the way Russia taxes its producers - the more they produce, the more goes in the budget anyway. The Russian budget has $40pbl as a break even point. Yes, they assumed $63 for the surplus which was to be allocated for a fiscal stimulus, but it's hardly a problem for them. The Saudis are running a budget deficit. Fine in a growing world, with plentiful liquidity, not so fine in the current environment. The Saudis tried it once as others have alluded, and failed, they will fail again... This is less about the above more about Russia not playing ball. During last oil crash i think I heard Saudi can afford an oil price of $20 most other nations can not so it kills them unless Saudi cuts back output
As for the economic impact on the US - yet again, while you can shut off a shale well easily (relatively speaking), whilst its shut, it is not pumping. While it's not pumping, it isn't paying down the debt that was incurred to open it. Yes, technology has moved on massively since 2016, but the truth is, this will hurt the producers and by proxy the US financial market - High Yield credit in particular. If you are interested I can dig out the proportion of shale producers within the major HY Credit indeces. In a normal environment, it would have been seen as a nasty bump, now I don't know, there are monsters behind every corner...
Hope this helps a little
Cheburator mk2 said:
As for the economic impact on the US - yet again, while you can shut off a shale well easily (relatively speaking), whilst its shut, it is not pumping. While it's not pumping, it isn't paying down the debt that was incurred to open it. Yes, technology has moved on massively since 2016, but the truth is, this will hurt the producers and by proxy the US financial market - High Yield credit in particular. If you are interested I can dig out the proportion of shale producers within the major HY Credit indeces. In a normal environment, it would have been seen as a nasty bump, now I don't know, there are monsters behind every corner...
Hope this helps a little
Good points above. However one thing though that offsets or partially offsets the cost of debt - interest rates are mentally low. 10yr US treasuries are below 0.5%. as you noted shale operates a lot in the high yield area with much higher rates of course but they survived in 2015 with higher rates across the board then too. Some will fall over but the existing infrastructure is built up to a point the industry will remain. Especially given the US isn't going to give up energy independence. The shale horse bolted long ago imo....Hope this helps a little
Cheburator mk2 said:
Gecko1978 said:
AiUI, unlike a conventional oil well shale resources can be turned on and off at will that is its relatively easy to cap a well given the resources are locked in rock. Oil wells can't just be turned off, so price falls US buys oil from Saudi etc, price rises turns its own back on.
This is less about the above more about Russia not playing ball. During last oil crash i think I heard Saudi can afford an oil price of $20 most other nations can not so it kills them unless Saudi cuts back output
The cost of production is almost irrelevant here - Saudi needs the oil price at much higher levels to balance its budget. Like double the current $35pbl. So Saudi most definitely can't afford the price of oil to be this low for too long. In case you haven't noticed, Russia is yet again sitting on the 2nd largest FX reserves in the World. In addition - the way Russia taxes its producers - the more they produce, the more goes in the budget anyway. The Russian budget has $40pbl as a break even point. Yes, they assumed $63 for the surplus which was to be allocated for a fiscal stimulus, but it's hardly a problem for them. The Saudis are running a budget deficit. Fine in a growing world, with plentiful liquidity, not so fine in the current environment. The Saudis tried it once as others have alluded, and failed, they will fail again... This is less about the above more about Russia not playing ball. During last oil crash i think I heard Saudi can afford an oil price of $20 most other nations can not so it kills them unless Saudi cuts back output
As for the economic impact on the US - yet again, while you can shut off a shale well easily (relatively speaking), whilst its shut, it is not pumping. While it's not pumping, it isn't paying down the debt that was incurred to open it. Yes, technology has moved on massively since 2016, but the truth is, this will hurt the producers and by proxy the US financial market - High Yield credit in particular. If you are interested I can dig out the proportion of shale producers within the major HY Credit indeces. In a normal environment, it would have been seen as a nasty bump, now I don't know, there are monsters behind every corner...
Hope this helps a little
Shale oil and gas now as an established tech will always be their to temper price rises. $250 a barrel as predicted I think in 2007 is never going to happen (till we get to their being no oil left) so its a case an wait an see.
C0ffin D0dger said:
Olas said:
Oilchange said:
Will this lower petrol prices?
Hashtag:inanutshell
No, cheap oil does not mean cheap petrol. Cheap oil means better margins for oil comapnies.Hashtag:inanutshell
Gecko1978 said:
I don't actually know what Russia hope to achieve by going against opec. My guess is this is a large game of who blinks first. And i suspect it will be Russia as Saudi are the swing producer.
Shale oil and gas now as an established tech will always be their to temper price rises. $250 a barrel as predicted I think in 2007 is never going to happen (till we get to their being no oil left) so its a case an wait an see.
You are missing the point... Last time the Saudis blinked... They will blink again... There are lot's of reasons, no time to go into the details...Shale oil and gas now as an established tech will always be their to temper price rises. $250 a barrel as predicted I think in 2007 is never going to happen (till we get to their being no oil left) so its a case an wait an see.
As for shale being an established tech - of course it is. No one in their right mind would think that by getting oil to $35 you will shut them down. But you can cause some serious pain... In an electoral year...
Lentilist said:
Olas said:
Oilchange said:
Will this lower petrol prices?
Hashtag:inanutshell
No, cheap oil does not mean cheap petrol. Cheap oil means better margins for oil comapnies.Hashtag:inanutshell
Just means more likely to be more cutbacks and cost cutting and potentially people out of work at the oil companies.
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