Oil plunges about 30% after Saudi Arabia slashes prices, opens taps

[webfact]

Oil plunges about 30% after Saudi Arabia slashes prices, opens taps

Aaron Sheldrick

 

FILE PHOTO: Pump jacks operate at sunset in Midland, Texas, U.S., February 11, 2019. REUTERS/Nick Oxford/File Photo

 

TOKYO (Reuters) - Oil fell by the most since 1991 on Monday after Saudi Arabia started a price war with Russia by slashing its selling prices and pledging to unleash its pent-up supply onto a market reeling from falling demand because of the coronavirus outbreak.

 

Brent crude futures fell by as much as $14.25, or 31.5%, to $31.02 a barrel. That was the biggest percentage drop since Jan. 17, 1991, at the start of the first Gulf War and the lowest since Feb. 12, 2016. It was trading at $35.75 at 0114 GMT.

 

U.S. West Texas Intermediate (WTI) crude fell by as much as $11.28, or 27.4%, to $30 a barrel. That was also the biggest percentage drop since the first Gulf War in January 1991 and the lowest since Feb. 22, 2016. It was trading at $32.61.

 

Saudi Arabia, the world’s biggest oil exporter, is attempting to punish Russia, the world’s second-largest producer, for balking on Friday at production cuts proposed by the Organization of the Petroleum Exporting Countries (OPEC).

 

OPEC and other producers supported the cuts to stabilize falling prices caused by the economic fallout from the coronavirus outbreak.

 

Saudi Arabia plans to boost crude output above 10 million barrels per day (bpd) in April after the current supply deal between OPEC and Russia, - known as OPEC+ - expires at the end of March, two sources told Reuters on Sunday.

 

 

Saudi Arabia, Russia, and other major producers last battled for market share like this between 2014 and 2016 to try to squeeze out production from the United States, now the world’s biggest oil producer as flows from shale oil fields doubled the country’s output during the last decade.

 

“Saudi Arabia and Russia are entering into an oil price war that is likely to be limited and tactical,” Eurasia Group said in a note.

 

“The most likely outcome of this crisis is entrenchment into a painful process that lasts several weeks or months, until prices are low enough to ... some form of compromise on resumed OPEC+ production restraint,” Eurasia said.

 

Saudi Arabia has opened the war by cutting its official selling prices for April for all crude grades to all destinations by between $6 to $8 a barrel.

 

China’s efforts to curtail the coronavirus outbreak has disrupted the world’s second-largest economy and curtailed shipments to the largest oil importer.

The spread to other major economies such as Italy and South Korea and the burgeoning cases in the United States has increased the concerns that oil demand will slump this year.

 

Major banks such as Morgan Stanley and Goldman Sachs have cut their demand growth forecasts, with Morgan Stanley predicting China will have zero demand growth in 2020 while Goldman is seeing a contraction of global demand of 150,000 barrels per day.

 

In other markets, the dollar was down sharply against the yen, Asian stock markets were set for big falls and gold rose to the highest since 2013 as investors fled to safe havens.

 

(Reporting by Scott DiSavino and Aaron Sheldrick in TOKYO; Editing by Diane Craft and Christian Schmollinger)

 

-- © Copyright Reuters 2020-03-09

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[cornishcarlos]

When oil price crashes, the petrol stations take ages to adjust their prices...

But when the oil price goes up, the pump prices have gone up before the oil prices ????

Edited March 9, 2020 by cornishcarlos

[lannarebirth]

I can still remember when people thought the price of oil coming down was a good thing. Now everyone's been co-opted into becoming an economic actor in service to markets.

[timendres]

4 minutes ago, lannarebirth said:

I can still remember when people thought the price of oil coming down was a good thing. Now everyone's been co-opted into becoming an economic actor in service to markets.

Since oil is an input to many products, a lower price means lower prices and more demand - a good thing. However, at the moment, oil is an indicator of demand, and that makes a lower price a bad thing.

[metisdead]

Some off topic posts and the off topic replies have been removed. 

[lannarebirth]

3 minutes ago, timendres said:

Since oil is an input to many products, a lower price means lower prices and more demand - a good thing. However, at the moment, oil is an indicator of demand, and that makes a lower price a bad thing.

I understand the reasoning, but I don't understand why everyone should be made to care about it.

[NCC1701A]

European market opening soon on Bloomberg live:

 

just heard gold at $1700

 

https://www.youtube.com/watch?v=dp8PhLsUcFE

Edited March 9, 2020 by NCC1701A

[SCOTT FITZGERSLD]

wooowww

[Laughing Gravy]

2 hours ago, cornishcarlos said:

When oil price crashes, the petrol stations take ages to adjust their prices...

But when the oil price goes up, the pump prices have gone up before the oil prices ????

Yes like banks with interest rate cuts but when they go up, they up them as quick as flies round poop. Both industries reak of immorality and bias.

[URMySunshine]

Too much pain on the threads today I'm off to do the garden and marvel at the nice side of nature.

[saengd]

2 hours ago, cornishcarlos said:

When oil price crashes, the petrol stations take ages to adjust their prices...

But when the oil price goes up, the pump prices have gone up before the oil prices ????

That's not quite true in Thailand where the government smooths prices over time in order to protect consumers, I'm told they use a system of cost averaging in order to avoid sudden rises and falls.

[Baerboxer]

Must be fake news - Alex Salmond said Oil would never fall below $100 a barrel 5555555!

[saengd]

1 hour ago, saengd said:

That's not quite true in Thailand where the government smooths prices over time in order to protect consumers, I'm told they use a system of cost averaging in order to avoid sudden rises and falls.

Here's the price history per liter, see the effect on consumer prices of government price smoothing.https://tradingeconomics.com/thailand/gasoline-prices

[metisdead]

Some troll posts trolling about Trump and the replies have been removed. 

 

An inflammatory post has been removed. 

[Ian Nagle]

4 hours ago, lannarebirth said:

I understand the reasoning, but I don't understand why everyone should be made to care about it.

well you replied so, obviously you 'care about it'.

[Pedrogaz]

I love this story. I wish I had been a fly on the wall at the meeting. Were Saudi just posturing about cuts, or did they want to join the Russians and crush the price of oil to such lows that shale oil drillers will go bankrupt. They narrowly escaped in 2014. But a barrel of oil costs a shale driller about $75 so they are gonna make too much in the way of profits....they more they sell the more they lose, like Uber, like Tesla. Zombie companies.

[digger70]

7 hours ago, cornishcarlos said:

When oil price crashes, the petrol stations take ages to adjust their prices...

But when the oil price goes up, the pump prices have gone up before the oil prices ????

That's Business, to make extra money. ????

[from the home of CC]

I hope they're cutting their own throats, without the means of paying for all their layabout citizens lifestyles internal terrorism may reappear and run amok..

[metisdead]

A troll post has been removed. 

[Sydebolle]

Well, the Saudis have their backs to the wall while Putin can stand the pressure easily.

Just wondering what it actually costs to pump up one barrel of oil ........ 

[Stargeezr]

What great timing, Saudi Arabia, guess they want to rock the boat.

 Stock markets were already going down, now headed down more.  Sure glad I am living off

stocks for my retirement.

Geezer

[CGW]

2 hours ago, Stargrazer9889 said:

Sure glad I am living off stocks for my retirement.

You and I both! ???? 

Thankfully I don't have any oil stocks apart from Shell & XOM and they have a reasonable dividend! I have been watching certain other stock for the past year, waiting for the right opportunity - that was a complete waste of time! There screwed for years to come - if ever!

[Cryingdick]

5 hours ago, CGW said:

You and I both! ???? 

Thankfully I don't have any oil stocks apart from Shell & XOM and they have a reasonable dividend! I have been watching certain other stock for the past year, waiting for the right opportunity - that was a complete waste of time! There screwed for years to come - if ever!

 

What do you do when they cut the dividends? 

[heybruce]

I've read many values for the cost of producing shale oil in the US; on this page alone we have a range of $23.35 ro $75. 

 

I suspect the true cost is somewhere in between.  Now would be a good time to impose a flexible tariff on imported oil, something that would drive the cost per barrel up to the $50 or $60 range.  This would protect our energy security by protecting our domestic oil producers, while keeping the cost at a level that is low by recent historical standards.  It could also put a dent in our trillion dollar deficit.

 

I'm not a fan of interference in free, or semi-free, markets.  However to pretend a market dominated by OPEC and Russia is a free market is ridiculous, so why not?

[Crazy Alex]

11 minutes ago, heybruce said:

I've read many values for the cost of producing shale oil in the US; on this page alone we have a range of $23.35 ro $75. 

 

I suspect the true cost is somewhere in between.  Now would be a good time to impose a flexible tariff on imported oil, something that would drive the cost per barrel up to the $50 or $60 range.  This would protect our energy security by protecting our domestic oil producers, while keeping the cost at a level that is low by recent historical standards.  It could also put a dent in our trillion dollar deficit.

 

I'm not a fan of interference in free, or semi-free, markets.  However to pretend a market dominated by OPEC and Russia is a free market is ridiculous, so why not?

Holy <deleted>, we pretty much agree. On principle, I oppose tariffs as policy. However, if used as a temporary strategy, I can live with that. Indeed $50 to $60 per barrel keeps the oil flowing in the US, where our lift costs are higher than many other regions. And given just a few years ago, $80-$90 per barrel was the new bottom, the economy would accept $50 to $60 without hindering growth.

[Cryingdick]

 

17 hours ago, timendres said:

Since oil is an input to many products, a lower price means lower prices and more demand - a good thing. However, at the moment, oil is an indicator of demand, and that makes a lower price a bad thing.

It's hard on the banks that have a certain percentage of loans to oil companies in their portfolios. Oil has been uninvestable for awhile. For the past few years I occasionally look at oil and the dividends. I just don't see the upside to the downside in it. 

 

The banks are going to call in that debt eventually and the oil companies won't have the ability to pay. Dividend suspended stock price plummets. Aside from the fact oil is the new tobacco. With ESG investing becoming popular your average person won't buy oil stocks now. Once the big funds start leaving oil out pf their holdings it will get grim.

 

This is the writing on the wall for the upstart fracking, outfits, pipeline companies, and the weaker of the big multi-nationals. If my retirement counted on oil or dividends from it as income I wouldn't sleep well. In the next year it is going to be one after the other filing for bankruptcy.

Edited March 9, 2020 by Cryingdick

[bartender100]

I could almost taste getting my life back in Thailand after a 3 year absents, invested in a small oil company with what was soon to be enormous potential, and one way up share price

 

 But CORVID-19 and $30 a barrel have scuppered that for now for sure

 

Oh well that's life

[Cryingdick]

8 minutes ago, Tayaout said:

Maybe but they also have the most expensive welfare spending. Most of it goes to the royals. 

KSA is going to run out of money much quicker than they run out of oil. They are trying to become more moderate but I can't see tourism replacing the shortfall. They will run into a credit crunch eventually as big modern American weapons require big, modern , dollars.

[rabas]

2 hours ago, heybruce said:

I've read many values for the cost of producing shale oil in the US; on this page alone we have a range of $23.35 ro $75. 

 

I suspect the true cost is somewhere in between.  Now would be a good time to impose a flexible tariff on imported oil, something that would drive the cost per barrel up to the $50 or $60 range.  This would protect our energy security by protecting our domestic oil producers, while keeping the cost at a level that is low by recent historical standards.  It could also put a dent in our trillion dollar deficit.

 

I'm not a fan of interference in free, or semi-free, markets.  However to pretend a market dominated by OPEC and Russia is a free market is ridiculous, so why not?

Though I agree, you may underestimate the power of shale. $23.35 to $75 is a price range for different locations and operators, in part due to different technologies. That means you can't kill shale (as Putin would love to do) at lower prices, you only trim it back. Since shale is much easier to turn on and off, it just comes back as prices rise again. Even with new operators who just rent the same old equipment. 

 

Shale is the black virus, they can't kill it off so it serves as a permanent cap on global oil prices.

 

This is why Putin brags he can survive with $25-$30 oil for many years as he drains reserves. But Putin is a master of deception. I have good Russian friends and Russia is already a basket case with strange goings on. I think Saudi Arabian princes can buy fewer Lamborghinis and diamonds easier than Putin can further squeeze the Russian people.

 

 

[Eric Loh]

2 hours ago, Cryingdick said:

KSA is going to run out of money much quicker than they run out of oil. They are trying to become more moderate but I can't see tourism replacing the shortfall. They will run into a credit crunch eventually as big modern American weapons require big, modern , dollars.

Therein lies another problem if KSA and other middle eastern countries that centered their economies around oil and gas run out of money. The dramatic drop in their GDP will create a problem for the dollar. These countries oil companies are big buyer of US debts. If they are cash strapped, they will stop buying US debts and will cause the dollar to collapse. Gold and silver have been rising as investors are getting worrisome concern for the dollar. If they abandon the petrodollar, the US dollar will be destroyed.