US, WASHINGTON (ORDO NEWS) — Collusion in the Russian oil market! Urgently call Robert Muller! Call TV host Rachel Maddow! Start the investigation in the House of Representatives!
That “very important” call that President Trump and Vladimir Putin took during the Fox and Friends program could have had some effect on oil prices. Oil now under the June and other futures contracts again costs more than $ 30.
This week was supposed to be the beginning of the end of the transaction OPEC + and Russia to limit production in the face of declining demand. It was mainly an agreement between Saudi Arabia and Russia, and it has been in force for at least three years. Basically, it was a response to competition from US shale oil and gas companies.
A month ago, Riyadh and Moscow rested and refused to reduce production. Thus, both the Russians and the Saudis began to extract more oil at the very moment when, due to the pandemic, the main world economies turned on the pause button.
Saudi Arabia urgently convened an OPEC + meeting, mainly because of fears that there would be no storage space for the oil that it produces but does not sell, and as a result, oil will become free. What else should they do with this oil?
Russian companies are now signaling that after a conversation between Presidents Trump and Putin, they are ready to cut production.
“There is nothing unexpected in such a sharp turnaround,” says Amarpreet Singh, an oil analyst at Barclays. Washington’s political intervention seemed quite likely, as he was alarmed by the fact that his Saudi allies were trying to crush American shale producers at a time when the country was fighting a pandemic.
There is some uncertainty regarding the participation of non-OPEC countries in production negotiations, and this is especially true for the United States. But the scale of the fall in global demand means that the largest oil and gas companies will have to get together and negotiate. It will be something like OPEC ++.
Russia and the United States are not part of this cartel, which is led by the Saudis.
If OPEC agrees to reduce deliveries by two million barrels per day compared with the March level, this will reduce the forecast imbalance by about 30%, lead to stabilization of oil prices and stop the decline in oil companies.
It is difficult for Saudi Arabia to find buyers for part of its oil, even after it offered serious discounts. First of all, this applies to China.
Russian Urals oil today costs $ 15 per barrel cheaper than Brent, which is a European benchmark.
In the current scenario, the net price per barrel is lower than the cost of production, and this cannot be offset by an increase in sales or a decrease in exchange rates if no one is buying oil.
“We expect OPEC + oil-producing countries to cooperate, because maintaining market share in the current environment seems like a futile and short-sighted undertaking,” Singh says.
U.S. oil production growth began to slow even before the pandemic arrived.
Shale producers abandoned excessive spending, fearing to go bankrupt. Barclays estimates that the weighted average price of oil in the Perm basin, Bakken formation and Eagle Ford sedimentary rocks is about $ 50 per barrel.
Non-US supplies have been increasing lately, and due to lower prices, there are fewer new projects being put into operation. Such trends should lead to more optimistic scenarios for OPEC and Russia after demand recovery, Singh said.
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