Russia drags down the world economy - Oil prices fall by 20% - Final nail in the coffin?

[CGW]

47 minutes ago, Logosone said:

The US is the biggest producer of oil in the world.

This price drop will bankrupt many "Shale" oil producers, they need $50+ to break even, the banks will profit no doubt!

[ThaiBunny]

Just now, CGW said:

the banks will profit no doubt!

Only if the producers can repay their loans

[Rimmer]

Thai Visa story from Reuters is running in World News HERE

[ExpatOilWorker]

Putin & MBS.

 

 

[soalbundy]

24 minutes ago, Logosone said:

 

The US Dollar has been on tearaway upslide, but this has well and truly come to an end. The PMI figures in February were a clear warning.

 

The US economy is officially in war time conditions now:

 

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said: “With the exception of the government-shutdown of 2013, US business activity contracted for the first time since the global financial crisis in February. Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders. “Total new orders fell for the first time in over a decade. The deterioration in was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions. However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year. “The survey data are consistent with GDP growth slowing from just above 2% in January to a crawl of just 0.6% in February. However, the February survey also saw a notable upturn in business sentiment about the year ahead, reflecting widespread optimism that the current slowdown will prove shortlived.”

 

https://www.markiteconomics.com/Public/Home/PressRelease/2ea84928c5d74262bbe387ec2b19d337

 

The Fed did not cut rates for nothigng, obviously there is concern.

 

Still, they are the only big boy left. The US will have to muscle the world economy out of this mess. Hopefully the US downturn is shortlived.

MAGA ? ? ?  Yeah Trump'll fix it, fix it good

[CGW]

6 minutes ago, ThaiBunny said:

Only if the producers can repay their loans

Wont they pick up the "asset" cheap, hold - then resell when the price returns? as they usually do...............????

[ExpatOilWorker]

3 minutes ago, CGW said:

This price drop will bankrupt many "Shale" oil producers, they need $50+ to break even, the banks will profit no doubt!

Investors lose their shirt, but it is not like someone drive out to the Permian basin and throw a stick of dynamite at the oil wells.

Someone else will buy the field for cents to the dollar and the oil keep flowing. 

MBS tried to suffocate the shale industry in 2014 and failed miserably. 

[ThomasThBKK]

I am not much into the oil market, any idea what happens with Norway? They are also quite reliant on Oil. And for whatever reason their soverein wealth fund has a lot of oil investments, they wanted to change that but not sure they ever did: https://www.reuters.com/article/us-norway-swf-oil/norway-sovereign-wealth-fund-to-divest-oil-explorers-keep-refiners-idUSKBN1WG4R9

Edited March 9, 2020 by ThomasThBKK

[Logosone]

By far the best analysis why Russia did this from Forbes:

 

Let’s rewind back to 2014, when OPEC initially declared war on U.S. shale oil producers. Oil prices had begun to weaken as shale oil production continued to expand, so OPEC decided it needed to act to protect market share. A price war ensued that dropped oil prices all the way into the $20s. At that time I noted that the decision would probably cost OPEC a trillion dollars or more (and it likely did).

 

While some shale producers were forced into bankruptcy, most were far more resilient than OPEC had imagined. Thus, two years later OPEC waved the white flag and returned to the strategy of making production cuts in order to support prices.

 

The downside of this strategy for them was that, while these production cuts do help support oil prices, they also keep U.S. shale oil producers in business. So, shale production in the U.S. kept expanding. This put OPEC in the cycle of having to cut production again and again as shale production kept climbing. Many OPEC members deemed this unfair, but they had already experienced the alternative and it was worse.

 

From Russia’s point of view, all this strategy was doing was propping up U.S. oil producers at the expense of everyone else. The only way this strategy would ultimately work would be for OPEC and its partners to keep cutting until U.S. shale oil production began to decline.

 

https://www.forbes.com/sites/rrapier/2020/03/08/what-was-russia-thinking-in-refusing-to-cut-oil-production/#4f76be107fcc

 

So the Americans admit 'This is our fault'. It was the US shale oil producers that caused the oil prices to fall, and which caused Russia to walk away. Now there will be such an almighty oil price drop that the Americans will suffer. All in response to US shale oil producers flooding the oil market.

 

 

[SCOTT FITZGERSLD]

WOOOOW unbeliveable !!

OIL LOST 20% TODAY !

thanks for this post - i did not believe until i saw it myself !!

this is a historic earth quake !!

we might very well see a blood bath in the markets in the coming weeks !

might triger a 1929 reccesion again !

11 years of bul run (in the u.s. markets) have come to an end .... 

[Logosone]

15 minutes ago, ThomasThBKK said:

I am not much into the oil market, any idea what happens with Norway? They are also quite reliant on Oil. And for whatever reason their soverein wealth fund has a lot of oil investments, they wanted to change that but not sure they ever did: https://www.reuters.com/article/us-norway-swf-oil/norway-sovereign-wealth-fund-to-divest-oil-explorers-keep-refiners-idUSKBN1WG4R9

 

According to these Norwegians Norway will suffer.

 

"According to the latest statistics, Norway’s GNP would fall by 17 per cent if petroleum income was lost overnight — 17 per cent of our GNP is generated by the offshore petroleum industry. The loss could possibly (guessing!) rise to as much as 30 per cent because of the onshore economic activity supporting the petroleum industry and the economic and social upheavals that would accompany such a shock to the economy. The total value of Norwegian exports was 310 billion NOK in the first quarter of 2018, of which 130 billion was petroleum exports, so a hefty devaluation of the Norwegian krone would also be expected."

 

"In the long run, things are likely to get worse. At some point the central bank will not be able to lower the interest rates further, and consumer spending will start to shrink as the housing bubble stops and reverses. Higher unemployment means it will not be possible to negotiate higher wages and salaries to compensate for the inflation. Shops and services will cut back or close down, adding to the unemployment. Lower tax income and higher expenses for the state and local governments will reduce public services. "

 

https://www.quora.com/What-will-happen-to-Norways-economy-if-oil-prices-continue-to-remain-low

 

The smart thing Norway did was indeed run a sovereign wealth fund, which holds 2% of all the world's most valuable shares. That should help a little. But Norway will probably come to a level similar to Germany, Denmark at al, who don't depend on oil.

[Logosone]

12 minutes ago, SCOTT FITZGERSLD said:

WOOOOW unbeliveable !!

OIL LOST 20% TODAY !

thanks for this post - i did not believe until i saw it myself !!

this is a historic earth quake !!

we might very well see a blood bath in the markets in the coming weeks !

might triger a 1929 reccesion again !

11 years of bul run (in the u.s. markets) have come to an end .... 

 

It is indeed a historic day.

 

A bloodbath for FTSE and Dow Jones shares awaits, as soon as London and NY open.

 

Some indicators already point to figures beyond the 2008 financial crisis.

 

I'm still optimistic though. If Germany could come back from Hour Zero and total destruction in 1945, then the world economy should come back from this and all it entails.

[Logosone]

42 minutes ago, ExpatOilWorker said:

Investors lose their shirt, but it is not like someone drive out to the Permian basin and throw a stick of dynamite at the oil wells.

Someone else will buy the field for cents to the dollar and the oil keep flowing. 

MBS tried to suffocate the shale industry in 2014 and failed miserably. 

 

That's exactly right, it's all in the excellent Forbes article below. It would appear the US flooded the market with oil and in order to defend themselves OPEC then tried to cut prices.

 

Like you said, it didn't work, oil fell to the 20$  but while some shale oil producers failed, others kept going. So OPEC again wanted to cut production.

 

But Russia doubted that this would work, as it also benefitted the US shale oil producers, so now we have a full blown oil price war.

 

People think Saudi Arabia and Russia shot themselves in the foot. But if you look at what happened, that a number of US oil men thought they could change the oil industry to thr benefit, but then ultimately caused a massive fall in the price of their product...looks like the US shot itself in the foot most of all. 9 million people in the US depend on the oil industry.

 

What is not clear is how long the oil will keep flowing for the US shale producers. That's why Russia walked away I guess, they were concerned that price cuttting would just help the US shale oil producers and their reserves would last longer than the cuts could go on.

 

 

https://www.forbes.com/sites/rrapier/2020/03/08/what-was-russia-thinking-in-refusing-to-cut-oil-production/#4f76be107fcc

 

 

Edited March 9, 2020 by Logosone

[ChouDoufu]

why are we calling this a price war, as though saudi arabia and russia are taking turns undercutting each other's prices?

 

it was saudi arabia that unilaterally cut their price $6-8 per barrel.  russia, and all other producers, must then match that price or lose market share.

 

it's not a 'price war' until russia, or some other producer, responds with their own lower price to undercut saudi arabia.

 

i understand we really, really, really want to blame russia, but they're not even members of opec.  they aren't responsible for opec being unable to reach an agreement amongst themselves.  they're just a handy victim to take the blame off saudi arabia who made any agreement contingent upon russia signing up also.

[Logosone]

33 minutes ago, ChouDoufu said:

why are we calling this a price war, as though saudi arabia and russia are taking turns undercutting each other's prices?

 

it was saudi arabia that unilaterally cut their price $6-8 per barrel.  russia, and all other producers, must then match that price or lose market share.

 

it's not a 'price war' until russia, or some other producer, responds with their own lower price to undercut saudi arabia.

 

i understand we really, really, really want to blame russia, but they're not even members of opec.  they aren't responsible for opec being unable to reach an agreement amongst themselves.  they're just a handy victim to take the blame off saudi arabia who made any agreement contingent upon russia signing up also.

 

It's certainly an interesting question 'who is to blame'?  One could blame the US shale oil producers who flooded the oil market and depressed prices, forcing the Saudis to lower prices in 2014 to retain market share. 

 

However, the thing is, it was clear that Saudi Arabia WAS prepared to cut production. It was Russia that decided that cutting production would only benefit US shale oil producers, but that neither OPEC or Russia could continue to cut production longer than the US would be able to sell shale oil. Russia was the one that walked away.

 

And the Saudis are so <deleted> they are punishing Russia now, by lowering the price drastically. People are already predicting that Russia will come to the table again in the near future.

[ExpatOilWorker]

3 minutes ago, Logosone said:

 

It's certainly an interesting question 'who is to blame'?  One could blame the US shale oil producers who flooded the oil market and depressed prices, forcing the Saudis to lower prices in 2014 to retain market share. 

 

However, the thing is, it was clear that Saudi Arabia WAS prepared to cut production. It was Russia that decided that cutting production would only benefit US shale oil producers, but that neither OPEC or Russia could continue to cut production longer than the US would be able to sell shale oil. Russia was the one that walked away.

 

And the Saudis are so <deleted> they are punishing Russia now, by lowering the price drastically. People are already predicting that Russia will come to the table again in the near future.

The Ruskis better hurry up, because while prices are low commodity traders are filling everything they can get their hand on, even converting idle tankers into floating storage. Once they build up inventory, prices will stay low for longer.

It takes forever to drain excess inventory because the 100 million bbls/day oil market is so well balanced. Again, this is not wisdom, but old news as we saw the same thing happen in 2014.

[ChouDoufu]

sure, but why say "russia walked away?"

they stayed until the end of the meeting as far as i know, they didn't storm out.

saudi arabia, heading opec, made an ultimatum....cut this much or else.  russia was willing to continue with the current cuts until june.

saudi didn't get what they wanted, so decided to blow up the market.

[Logosone]

9 minutes ago, ExpatOilWorker said:

The Ruskis better hurry up, because while prices are low commodity traders are filling everything they can get their hand on, even converting idle tankers into floating storage. Once they build up inventory, prices will stay low for longer.

It takes forever to drain excess inventory because the 100 million bbls/day oil market is so well balanced. Again, this is not wisdom, but old news as we saw the same thing happen in 2014.

This should last for a long time, this low oil price, don't you think? What's your best guess how long this will last?

 

Even if Russia comes back to the table, it's debatable if them agreeing to cut production now would be enough to raise the oil price significantly.

[Logosone]

3 minutes ago, ChouDoufu said:

sure, but why say "russia walked away?"

they stayed until the end of the meeting as far as i know, they didn't storm out.

saudi arabia, heading opec, made an ultimatum....cut this much or else.  russia was willing to continue with the current cuts until june.

saudi didn't get what they wanted, so decided to blow up the market.

 

Well, because they walked away from the production cutting plan alltogether, sure they staid till the end of the meeting, but they abandoned production cuttting altogether. It was them.

 

The Saudis were prepared to cut production. When the Russians refused, the Saudis decided to punish the Russians.

 

We'll have to wait and see if the Russians were right, ie if a) the US shale oil producers will outlast any attempts to kill them off, and therefore production cuts make no sense and b) if the Russians can live with cheap oil in the long term.

 

 

[ExpatOilWorker]

33 minutes ago, Logosone said:

This should last for a long time, this low oil price, don't you think? What's your best guess how long this will last?

 

Even if Russia comes back to the table, it's debatable if them agreeing to cut production now would be enough to raise the oil price significantly.

You mean could, right?

 

We had a very similar (political/production) situation in October 1998 and at that time oil hit $10 a bbls. I was running a frac base at the time and work totally dried up and we were stacking equipment everywhere.

At that time, it didn't last long and less than a year later we back in business again.

Sadly only for another 2 years, because then September 11 happened and the oil industry went into a tail-spin again.

Edited March 9, 2020 by ExpatOilWorker

[Logosone]

2 minutes ago, ExpatOilWorker said:

You mean could, right?

 

We had a very similar (political/production) situation in October 1998 and at that time oil hit $10 a bbls. I was running a frac base at the time and work totally dried up and we were stacking equipment everywhere.

At that time, it didn't last long and less than a year later we back in business again.

Sadly only for another 2 years, because then September 11 happened and the oil industry when into a tail-spin again.

 

That would be better, yes.

 

Very interesting, so it could last less than a year?

[metisdead]

Some off topic trolling posts trolling about Trump have been removed, a well pointed out reply was removed as well. 

[Logosone]

1 hour ago, ExpatOilWorker said:

You mean could, right?

 

We had a very similar (political/production) situation in October 1998 and at that time oil hit $10 a bbls. I was running a frac base at the time and work totally dried up and we were stacking equipment everywhere.

At that time, it didn't last long and less than a year later we back in business again.

Sadly only for another 2 years, because then September 11 happened and the oil industry went into a tail-spin again.

 

One other question, is shale oil production sustainable? The way I understand it there are various ways to produce shale oil. Do they really just require rocks? Would that not mean that there are huge reserves for Fracking/Shale oil? So this could go on for a while, if it is economically viable?

[gargamon]

5 hours ago, Logosone said:

 

Well, what about the US? 

 

The US is the biggest producer of oil in the world.

 

According to the American Petroleum Institute, the oil and natural gas industry supports nine million U.S. jobs and makes up seven percent of the nation's gross domestic product.

 

https://en.wikipedia.org/wiki/Petroleum_in_the_United_States

 

That's about the same as the City of London contributes to the UK economy, seven percent.

 

As the biggest oil producer, will the US not take a massive hit here?

US fracking oil production is expensive. They can't make anything with the price at $35. Many will be quickly out of business. Lots of layoffs. Russia will take a hit but in the long run will benefit.

[sanemax]

4 hours ago, Logosone said:

 

I'm still optimistic though. If Germany could come back from Hour Zero and total destruction in 1945, then the world economy should come back from this and all it entails.

Arent those two completely different incomparable situations though ?

[from the home of CC]

greta probably will go out and get p*ssed tonight..

[Logosone]

6 minutes ago, gargamon said:

US fracking oil production is expensive. They can't make anything with the price at $35. Many will be quickly out of business. Lots of layoffs. Russia will take a hit but in the long run will benefit.

 

Agreed, but if the oil price were to return to higher prices, say if Russia agrees to come to the table again, this would mean OPEC and Russia are still trying to cut production. Obviously they can't do so indefinitely. 

 

But if the Americans are turning rocks into oil, could this not go on for a long time (if it's economically viable)?

 

 

[Lacessit]

16 minutes ago, Logosone said:

 

One other question, is shale oil production sustainable? The way I understand it there are various ways to produce shale oil. Do they really just require rocks? Would that not mean that there are huge reserves for Fracking/Shale oil? So this could go on for a while, if it is economically viable?

The average life of a shale oil well is 18 months to 2 years, compared to about 30 years for a conventional well. That means a continuous flow of financing as well as oil is needed to drill more wells in order to keep up production.

It's an ill wind that blows no good - travelers and freight companies would be rejoicing, although COVID-19 is a spanner in the works. Once that pandemic is done, the low oil price could be stimulatory.

Of course, a low oil price will also mean conversion to renewable energy will stall.

[Logosone]

6 minutes ago, Lacessit said:

The average life of a shale oil well is 18 months to 2 years, compared to about 30 years for a conventional well. That means a continuous flow of financing as well as oil is needed to drill more wells in order to keep up production.

It's an ill wind that blows no good - travelers and freight companies would be rejoicing, although COVID-19 is a spanner in the works. Once that pandemic is done, the low oil price could be stimulatory.

Of course, a low oil price will also mean conversion to renewable energy will stall.

 

Excellent post. Totally agree that  the low oil price does not stimulate the economy in and of itself. The airlines should be soaring high with this low oil price, but they are not, due to the virus. Once the virus clears up the low oil could be beneficial, but not yet.

 

What I was getting at, you can sort of pinpoint the total amount of reserves of crude oil for say Saudi Arabia or Russia. But can you quantify the reserves US shale oil producers can use?

Edited March 9, 2020 by Logosone

[CGW]

1 minute ago, Logosone said:

But can you can you quantify the reserves US shale oil producers can use?

Difficult at best, the wells die off so quickly as already stated, they need to be "serviced" fracked to keep up production, fracking not cheap so how many will be able to afford this? The banks were already shutting down credits. The numbers you read are all over the place as they have been "sucking" in investors for some years!