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Oil Turns Negative After Russia, Saudis Agree To Cap Output At 8.5MM B/D For 2 Months

Oil Turns Negative After Russia, Saudis Agree To Cap Output At 8.5MM B/D For 2 Months

Update (1350ET): What started off euphorically, has quickly become R-OPEC’s latest dud, with oil now sliding red on the day after earlier surging more than 10%, following the latest news out of the oil producerteleconference, according to which Russia and Saudi Arabia agree to cap production to 8.5MM b/d, indicating a production cut of about 23% each, and which will last for just two months, May and June. 

Furthermore, as Iran’s oil minister explains, the total cut of 10MMb/d (which will include several non Russia/Saudi producers) will ease to 8MMb/d in July and then after Jan 2021, the cut will decline to just 6 million b/d production cut.

In a nutshell, R-OPEC is hoping for two things: i) oil demand will rebound after the summer and the oil market will stabilize organically as the global economy recovers from the coronavirus and ii) the US and other G20/non-OPEC producers join the cuts voluntarily, which however is far from assured.

Meanwhile, even with the 10mm b/d cut (which is really about 7 millions if one uses Saudi Arabia’s Feb production numbers) will be nowhere near enough to offset the global demand plunge which according to industry watchers such as Trafigura is as large as 35mmb/d!

And now that the initial euphoria has worn off and traders are able to do math again – and realize that the cuts are not nearly enough – oil has slumped and was trading in the red last as once again, OPEC has failed to live up to the hype.

Finally, as a reminder, here is why Goldman believes that after today’s pomp and circumstance, oil is still going to $20:

…click on the above link to read the rest of the article…

The OPEC Meeting Could Send Oil Prices Crashing Below $10

The OPEC Meeting Could Send Oil Prices Crashing Below $10

OPEC Meeting

The current optimism of analysts and the media that an end to the ongoing OPEC+ oil price spat is near is entirely unjustified. The ongoing oil market volatility, the battle between leading producers for market share, the logistical impossibility of enforcing U.S. production cuts, and the continued demand destruction caused by COVID-19 are not issues that can be solved by an OPEC meeting. Immediately after Trump’s latest OPEC twitter offensive, Saudi Arabia and Russia came out with critical statements about the impact and influence of the US president on the matter. While Putin and Mohammed bin Salman are reluctant to bash Trump, the real power when it comes to the oil market does not lie with the U.S. President. The tweet by Trumpclaiming that MBS and Putin would agree to a 10+ million bpd production cut shows not only his overestimation of his own power over the two countries, but also shows a lack of knowledge about the underlying market fundamentals and the current demand destruction worldwide.  As former US president George W. Bush stated during his election campaign, which did not end well as we know, “it’s the economy stupid” that matters in the end. Trump’s tweets and general approach to this matter suggests he and his administration are out of touch with reality. Even if a Saudi-Russian combination would cut 10 million bpd, the oil price reaction would be minimal and very short-lived. At present, leading oil market experts such as Vitol, Trafigura and Goldman Sachs are warning of a total demand destruction of 20 million bpd or more.

…click on the above link to read the rest of the article…

Whiting Petroleum Files For Prepackaged Bankruptcy

Whiting Petroleum Files For Prepackaged Bankruptcy

Talk about a coincidence: just as we were discussing why April would be “apocalyptic” for the oil industry, as Saudi Arabia just unleashed an unprecedented record amount of oil to buyers in a scramble to put its high-priced competitors out of business, warning that “countless oil producers would file for bankruptcy”, former shale darling Whiting Petroleum did just that, filing a pre-packaged Chapter 11 deal in the Southern District of Texas Bankruptcy Court after reaching an agreement with certain note holders to pursue a “comprehensive” and “consensual” financial restructuring.

Whiting, which in Q4 pumped 123,000 bpd of which 80,000 bpd was nat gas, said it concluded that given a “severe downturn” in oil and gas prices resulting from the Saudi Arabia-Russia oil price war and COVID-19-related impact on demand a financial restructuring was the “best path forward.” Creditors may disagree: the company’s bonds due March 2021 were trading at par as recently as mid-January, even though we warned as far back as 2015 that it would be the first company to go under: truly a testament to how idiotic the junk bond market has been for the past 4 years.

The company said that the plan provides for de-leveraging of capital structure by more than $2.2 billion, and listed $1-$10 billion in debt and more than $585 million of cash on its balance sheet, noting that it expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.

More importantly, it will continue to operate its business and pump oil for the duration of the Chapter 11 proceedings, meaning that oil production won’t decline by even one drop.

The bankruptcy press release is below:

…click on the above link to read the rest of the article…

The Unthinkable Is Happening: Oil Storage Space Is About To Run Out

The Unthinkable Is Happening: Oil Storage Space Is About To Run Out

In the past three weeks, oil plunged and has continued to plunge even more in the aftermath of the oil price war declared between Saudi Arabia and Russia, and where US shale (and its junk bonds) has been caught in the crossfire. However, as we reported last week, we may get to the absurd point when the price of a barrel of oil not only hits $0 but goes negative.

The reason: according to Mizuho’s Paul Sankey, at a whopping 15MM b/d in oversupply, crude prices could go negative as Saudi and Russian barrels enter the market. According to Sankey, much of the US 4MM bpd in crude exports will be curtailed as prices fall and tanker rates soar. And with US storage roughly 50% full, and able to take another 135MM bbl more, assuming a build rate of 2MM b/d, the US can add 14MM bbl/week for 10 weeks until full.

As a result, there is a now race between filling storage and negative pricing “unless U.S. decline rates can outpace inventory builds, which we very much doubt.” Said otherwise, absent dramatic changes, in roughly 3 months, energy merchants will be paying you if you generously take a couple million barrels of crude off their hands.

It went from bad to an outright disaster earlier this week when Goldman, Vitol, and the IEA all raised their estimate for daily oil oversupply to an unthinkable 20 million barrels per day, as a result of the collapse in oil demand as the global economy grinds to a halt coupled with Saudi Arabia’s determination to put all of its higher-cost OPEC peers out of business.

…click on the above link to read the rest of the article…

The Inevitable Outcome Of The Oil Price War

The Inevitable Outcome Of The Oil Price War

Putin MBS

One might reasonably posit that when Crown Prince Mohammed bin Salman (MbS) signalled that Saudi Arabia was once again going to produce oil to the maximum to crash oil prices in a full-scale oil price war, Russian President Vladimir Putin probably fell off the horse he was riding bare-chested somewhere in Siberia because he was laughing so much. There is a phrase in Russian intelligence circles for clueless people that are ruthlessly used without their knowledge in covert operations, which is ‘a useful idiot’, and it is hard to think of anyone more ‘useful’ in this context to the Russians than whoever came up with Saudi’s latest ‘plan’. Whichever way the oil price war pans out, Russia wins.

In purely basic oil economics terms, Russia has a budget breakeven price of US$40 per barrel of Brent this year: Saudi’s is US$84. Russia can produce over 11 million barrels per day (mbpd) of oil without figuratively breaking sweat; Saudi’s average from 1973 to right now is just over 8 mbpd. Russia’s major oil producer, Rosneft, has been begging President Putin to allow it to produce and sell more oil since the OPEC+ arrangement was first agreed in December 2016; Saudi’s major oil producer, Aramco, only suffers value-destruction in such a scenario. This includes for those people who were sufficiently trusting of MbS to buy shares in Aramco’s recent IPO. Russia can cope with oil prices as low as US$25 per barrel from a budget and foreign asset reserves perspective for up to 10 years; Saudi can manage 2 years at most.

…click on the above link to read the rest of the article…

The Great American Shale-Oil Bust Turns into Massacre

The Great American Shale-Oil Bust Turns into Massacre

Shares of shale oil drillers collapsed by 25%-50% today. Their bonds got massacred. Saudi-Russia price-war strategy appears successful in wiping out investors in the US shale-oil sector.

It was so chaotic and brutal in the crude oil market today that the EIA, which is part of the US Department of Energy, emailed out a statement that it would have to delay its monthly Energy Outlook to figure in all the chaos: “We have delayed the release of the Short-Term Energy Outlook to allow time to incorporate recent global oil market events. The outlook will now be released Wednesday, March 11, at 9:00 a.m.”

Shares of Occidental Petroleum, which is heavily involved in US shale oil and gas, collapsed by 53% today to $12.51. They’re down 85% since October 2018, when phase two of the Great American Oil Bust set in, with phase one having commenced in July 2014:

Oxy’s bonds – those that even traded – collapsed today. For example, this $750 million 30-year senior unsecured bond, with a coupon interest of 4.1%, closed on Friday at 92.5 cents on the dollar. Like many bonds, they don’t trade much, but are stuck in bond funds or held by institutional investors, and it’s hard to sell them because there are not many buyers.

Today, there are only two trades listed on FINRA-Morningstar, but they were big trades, with institutional investors unloading them for whatever they could get. So the price today collapsed by 34% from the close on Friday, and by 39% over the past three trading days, to 61 cents on the dollar:

Shares of Chesapeake Energy, a former shale oil-and-gas giant, particularly focused on natural gas, plunged 28% today, from nearly nothing to almost nothing, closing at $0.16. The company has been dilly-dallying around near the bankruptcy-filing counter for years, without having filed yet, as investors continued to feed it fresh cash and agreed to haircuts and restructure its debts. But that fresh-cash option appears to be off the table.

…click on the above link to read the rest of the article…

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

With the commodity world still smarting from the Nov 2014 Saudi decision to (temporarily) break apart OPEC, and flood the market with oil in (failed) hopes of crushing US shale producers (who survived thanks to generous banks extending loan terms and even more generous buyers of junk bonds), which nonetheless resulted in a painful manufacturing recession as the price of Brent cratered as low as the mid-$20’s in late 2015/early 2016, on Saturday, Saudi Arabia launched its second scorched earth, or rather scorched oil campaign in 6 years. And this time there will be blood.

Following Friday’s shocking collapse of OPEC+, when Russia and Riyadh were unable to reach an agreement during the OPEC+ summit in Vienna which was seeking up to 1.5 million b/d in further oil production cuts, on Saturday Saudi Arabia kick started what Bloomberg called an all-out oil war, slashing official pricing for its crude and making the deepest cuts in at least 20 years on its main grades, in an effort to push as many barrels into the market as possible.

In the first major marketing decision since the meeting, the Saudi state producer Aramco, which successfully IPOed just before the price of oil cratered…

… launched unprecedented discounts and cut its April pricing for crude sales to Asia by $4-$6 a barrel and to the U.S. by a whopping $7 a barrel in attempts to steal market share from 3rd party sources, according to a copy of the announcement seen by Bloomberg. In the most significant move, Aramco widened the discount for its flagship Arab Light crude to refiners in north-west Europe by a hefty $8 a barrel, offering it at $10.25 a barrel under the Brent benchmark. 

…click on the above link to read the rest of the article…

Saudis Urge More Than 1 Million Bpd Oil Cut To Prop Up Prices, Russia Opposes

Saudis Urge More Than 1 Million Bpd Oil Cut To Prop Up Prices, Russia Opposes

Update (0800ET): The Wall Street Journal reports that Russia opposes the Saudi plan to deepen OPEC+ cuts by 1.2mm b/d.

Developing…

*  *  *

As we detailed earlier, Brent crude futures were up 75 cents, or 1.45%, at 52.61 a barrel at 0700ET Wednesday after a three-day move of +10%, following expectations that major oil producers could make significant production cuts at the OPEC meeting on March 5. 

Brent has tumbled into a bear market, down 26.5% in 38 sessions, following the outbreak of Covid-19 in China, now spreading across the world, has slashed global oil demand.

“This is a sudden, instant demand shock,” said Jim Burkhard, vice president and head of oil markets at IHS Markit Ltd.

“The scale of the decline is unprecedented.”

OPEC+ Joint Ministerial Monitoring Committee, the body that oversees production, will meet on Wednesday, ahead of the formal meeting, to discuss cuts. Saudi Arabia is urging OPEC+ to come to an agreeance ahead of Thursday for a reduction of 1 million barrels per day to compensate for lost demand seen by the virus crisis, Bloomberg notes. 

“The recommended 600,000-barrel-a-day additional cut for the second quarter of 2020 will be seen as too little,” Mohammad Darwazah of consultant Medley Global Advisors said in a note. “It is clear that the group is mulling a deeper production pullback.”

The push for deep cuts comes as crude had its worst weekly decline since the 2008 financial crisis on mounting macroeconomic headwinds developing because of the virus spread, which forced Saudi Arabia to demand Russia jump on board with production cuts. 

…click on the above link to read the rest of the article…

Are Russia and Turkey on a Collision Course?

Are Russia and Turkey on a Collision Course?

The murder of the Iranian hero-martyr General Soleimani created a situation in which a war between Iran and the Axis of Kindness (USA/Israel/KSA) became a real possibility but, at the very last minute, Uncle Shmuel decided that he had no stomach for a full-scale war against Iran. Wise decision.

This, however, does not at all imply that the AngloZionist Empire decided to stand by idly, far from it. The need to take quick and determined action became particularly acute following the huge anti-US demonstrations in Iraq (well over one million people in the streets!) which directly put at risk the US occupation (the MSM would call it “presence”) in both Iraq and Syria.

At the same time, Turkish President Erdogan’s refusal to remove all the “bad terrorists” from the Idlib province eventually resulted in a joint Syrian-Russian offensive to liberate the province. That offensive, in turn, clearly infuriated the Turks who warned of a major military operation to prevent the Syrians from liberating their own country.

This begs the question: are Russia and Turkey really on a collision course?

There are certainly some very worrying warning signs including a number of very harsh statements by Erdogan himself, and a suddenly re-kindled Turkish interest for the US “Patriots”.

On the ground in Idlib, the Turks have clearly provided the “bad terrorists” with a lot of support including equipment, MANPADs, tanks and armored personnel carriers. The Turks actually went as far as sending special forces to assist the “bad terrorists” directly. Finally, from footage taken by Russian and Syrian drones, and even the “bad terrorists” themselves, it appears undeniable that Turkish MLRS and regular artillery provided the “bad terrorists” with fire support.

…click on the above link to read the rest of the article…

Saudi Arabia Pushes For OPEC Production Cut Of Up To 1 Million B/d As Outbreak Weighs On Demand

Saudi Arabia Pushes For OPEC Production Cut Of Up To 1 Million B/d As Outbreak Weighs On Demand

Half of China’s economy – the second largest in the world – is expected to be offline through at least mid-February. Traders started pricing in the impact on oil demand weeks ago. And now that it’s become clear to everybody that this problem isn’t going away any time soon, and after oil prices recorded their largest monthly drop in 30 yearsOPEC might step in to ‘re-balance’ the global energy market.

Confirming earlier whispers, Saudi Arabia is reportedly pushing for a major, short-term oil production cut, WSJ reported Monday morning, citing anonymous OPEC officials.

A group of OPEC countries and their allies – collectively known as OPEC+ – are planning to meet Tuesday and Wednesday to debate possible action thanks to the outbreak in China, the world’s largest oil importer and consumer.

One scenario being discussed is that Saudi Arabia, OPEC’s kingpin, would lead a collective reduction of 500,000 barrels a day. The production cut will remain in place until the outbreak has subsided, cartel officials said.

Another, more drastic, option being considered would involve a temporary cut of 1 million b/d, a cut that would deliver a decisive ‘jolt’ to the market (and potentially trigger another flurry of angry Trump tweets about oil prices – the ‘invisible tax’ – being too high.

…click on the above link to read the rest of the article…

Crude Crashes As Asia Trading Opens; Stocks Slump, Gold Jumps, Yuan Dumps

Crude Crashes As Asia Trading Opens; Stocks Slump, Gold Jumps, Yuan Dumps

While gold is spiking higher and stocks are getting hammered lower after a weekend of ugly headlines surrounding the lethality and spread of the novel coronovirus, the Saudis are desperately talking down the crash in crude oil prices

Brent is back below $60 and WTI has crashed to almost a $51 handle…

Saudi Arabia is “closely monitoring” the impact of the coronavirus outbreak on oil markets, but so far sees the crisis having a “very limited impact” on global demand, Energy Minister Prince Abdulaziz bin Salman says in a statement.

Current market impact on oil, “primarily driven by psychological factors and extremely negative expectations adopted by some market participants, despite its very limited impact on global oil demand.”

It seems that “psychological” impact is sending gold higher…

And stocks lower… Dow futures down over 300 points, back below 29,000…

And S&P futures back below the key 3,300 level…

…click on the above link to read the rest of the article…

Tanker Operators Suspend Travel Through Strait Of Hormuz

Tanker Operators Suspend Travel Through Strait Of Hormuz

Following Iran’s decision to lob missiles at US-Iraqi bases last night, several major tanker operators have suspended sailing through the Straits of Hormuz, the site of several tanker attacks last year.

Petrobras, Bahri – Saudi Arabia’s state-run tanker operator – and other tanker companies have suspended sailing through the Straits of Hormuz, WSJ reports, citing unidentified people familiar with the matter.

Meanwhile, Gulf officials are already trying to convince the world that there’s nothing to worry about in what’s essentially a tinderbox inside another tinderbox. United Arab Emirates’ Energy Minister Suhail al-Mazrouei said on Wednesday he saw no immediate risk to oil passing through the critical gateway through which 20% of the global supply of crude travels. al-Mazrouei made the comments on the sidelines of a conference in Abu Dhabi, the UAE capital.

The source of their concerns is clear: Iran carried out its “retaliation” for the killing of General Suleimani last night – though the Pentagon has confirmed that there have been no American casualties from Iran’s strikes. However, many fear that Iran isn’t finished with its retaliation. 

Mazrouei added that OPEC was not discussing any precautionary steps at the moment, but would re-evaluate the situation if a supply shortage emerged, according to Reuters. He said earlier that the global oil market was well supplied.

Oil prices initially moved higher after last night’s attacks, but prices have since settled, and the market largely ignored the news about the tanker suspensions, as it was already largely priced in.

On Tuesday, Washington warned about “the possibility of Iranian action against US maritime interests” in the Middle East.

“U.S. commercial vessels are advised to exercise caution and coordinate vessel voyage planning for transits of the Persian Gulf and nearby waterways,” the U.S. Maritime Administration said in a statement on its website.

…click on the above link to read the rest of the article…

IEA: An Oil Glut Is Inevitable In 2020

IEA: An Oil Glut Is Inevitable In 2020

Sohar oil tanks

Despite the OPEC+ cuts, the oil market is still facing a supply surplus in 2020, according to a new report from the International Energy Agency (IEA).

OPEC+ announced additional cuts of 500,000 bpd, which sounds more impressive than it is because the group was already producing under its limit. In November, for instance, OPEC was producing 440,000 bpd below the agreed upon ceiling.

Saudi Arabia agreed to shoulder an additional 400,000 bpd of voluntary cuts. But the deal also exempts 1.5 million barrels per day (mb/d) of Russia’s condensate production, allowing Russia to actually increase condensate output by 0.8 mb/d.

Still, the deal should take supply off the market. “If all the countries comply with their new allocations and Saudi Arabia delivers the rest of its voluntary cut of 0.4 mb/d, the fall in production volume versus today will be about 0.5 mb/d,” the IEA said.

OPEC said in its own report that the oil market would be largely in balance in 2020, albeit with a temporary glut in the early part of the year. The IEA sees inventories building at a rate of 0.7 mb/d in the first quarter.

The IEA cut its forecast for non-OPEC supply growth from 2.3 mb/d to 2.1 mb/d, due to weaker growth from Brazil, Ghana and the United States. The U.S. typically gets all of the attention, but disappointing news from Brazil and Ghana also led the IEA to revise forecasts lower.

Notably, Tullow Oil revealed a major disappointment from its Ghana operations, causing a complete meltdown in its share price this week. Its stock fell nearly 70 percent in a single day as investors overhauled their valuation of the company. Tullow admitted that its production from Ghana would decline in the years ahead.

…click on the above link to read the rest of the article…

Saudi Bases and the Bin Ladens: A Love Story

Saudi Bases and the Bin Ladens: A Love Story

What is Trump really up to? It’s almost unknowable. At the same time that the president was pulling (some) troops out of Northeast Syria, giving an antiwar speech, and then sending other troops back into Syria to “secure the oil,” he also quietly sent another 1800 service members into Saudi Arabia. What little Trump did say about it consisted of a peculiar defense of his actions. Faced with the obvious question from a reporter: “Mr. President, why are you sending more troops to Saudi Arabia when you just said it’s a mistake to be in the Middle East?” Trump argued that there was no contradiction in his policy because, well, the Saudis “buy hundreds of billions of dollars’ worth of merchandise from us,” and have “agreed to pay us for everything we’re doing to help them.” It seems the U.S. military is going full mercenary in the Gulf.

While I’ve noted that Trump’s recent antiwar remarks were profound – though largely unfulfilled – these words will amount to nothing if followed by a military buildup in Saudi Arabia that leads to a new, far more bloody and destabilizing, war with Iran. Nothing would please the “three Bs” – Israeli Prime Minister Bibi Netanyahu, Saudi Crown Prince Mohammed Bin Salman, and former National Security Adviser John Bolton – more than a US military strike on the Islamic Republic, cost and consequences be damned.

It’s just that an Iran war isn’t the only risk associated with basing majority-Christian, foreign American troops in the land of Islam’s two holiest cities. And a brief historical review of US presence in Saudi Arabia demonstrates quite clearly the potential transnational terrorist “blowback” of Washington’s basing decisions. In fact, Trump’s latest deployment constitutes at least the third time the US military has been stationed on the Arabian peninsula.

 …click on the above link to read the rest of the article…

The troubled Saudi Aramco IPO: It’s what you can’t see that counts

The troubled Saudi Aramco IPO: It’s what you can’t see that counts

It’s what you can’t see—the oil beneath the Arabian sands—that potential investors in Saudi Aramco’s on-again, off-again initial public offering (IPO) ought to focus on. The truth about the remaining oil resources beneath the Saudi desert continues to be a state secret. I’ll elaborate on this after a little background to set the context.

Recently, Saudi Aramco, the state-owned Saudi oil company, delayed its planned IPO again. For those who missed the previous time, plans for the IPO first came to light in 2016 as part of Saudi Arabia’s 2030 Vision, essentially a plan to diversify the country’s economy away from heavy dependence on oil. The feverish attention the proposed IPO produced abated when the world’s largest company unexpectedly withdrew it in 2018. The financial firms advising the government were let go as the government looked for other ways to raise money for its 2030 Vision plans.

And yet, the IPO idea remained a possibility and was later revived. The problem has been that both times the IPO looked like it was about to happen, the Kingdom of Saudi Arabia got cold feet, worried that it might not get the $100 billion it wants for 5 percent of the company.

Initial hopes of listings on prominent international exchanges such as the New York Stock Exchange and the London Stock Exchange have long since been abandoned. But the most recent IPO attempt was to be made wholly on Saudi Arabia’s own domestic exchange. Even that apparently looked like it might fail.

So, the big question is why. The answer is probably right beneath the Saudis’ feet: The oil under Saudi sands—or rather the uncertainty about the amount of extractable oil that still lies there.

 …click on the above link to read the rest of the article…

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