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Saudi Arabia declares oil price war on fellow OPEC (and non OPEC)members.

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Posted (edited)

The mother-of-all oil market busts is here: Talk of a 28% drop at the open

Sun 8 Mar 2020 17:05:40 GMT

 

Saudi Arabian price war will crush oil companies

MBS
 
The mother of all busts is unfolding in the oil market. WTI crude is already down 37% since the January high and it's about to get much worse. Monday's open will be ugly, with talk of a 28% drop at the open. There are daily limits so there's a good chance it just won't open but we will get an idea in ETFs, oil stocks and foreign markets.
 
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Saudi Arabia announced drastic crude price cuts on the weekend in a declaration of a price war after the OPEC+ cartel fell apart on Russia's refusal to lower production. Saudi official selling prices fell $8-$10.25 below Brent, which is the most in at least 20 years. They also hinted at hiking production by more than 2 million barrels per day.
 
The Kingdom at the same time appears to be fighting off a coup. Crown Prince Mohammed bin Salman arrested three royal family members on the weekend, including a brother of king. Rumors have resurfaced once again that the king is dead or gravely ill. Saudi Arabia also imposed a quarantine on al-Qatif city to halt the spread of coronavirus.
 
Even without a price war, the virus is a massive demand shock that could leave upwards of 5 million barrels per day unburned. Even if prices at the pump crater, don't expect a demand response if the virus continues to spread.

Add it all up and it's the perfect storm in oil. On top of that, US shale is already in the midst of a bust with $200 billion in debt maturing over the next four years. Russia and Saudi Arabia would love to see a sharp contraction in shale production, which has now almost-certainly peaked.
 
Looking at the oil chart, it has the potential to be extremely ugly.


oil

 

The first level to watch is $40 but that will surely break at the open on Monday and the crude could be a falling knife. The 2016 low was $26.05 but the measured target of the double-top at $65 is right around $20.
 
The selling won't end until the virus improves or we see massive production shut-ins from oil companies. Expect it to start with a wave of dividend cuts.
 
Saudi Arabia has rarely participated in a price war but one of the times it did was in 1998 and that sent crude as low as $9.85/barrel.
 
So the oil bust is here and now the question is what will be the collateral damage? The high-yield market is going to have a very bad day and who knows where the other vulnerabilities are.
 
 
***************
 
There is talk those arrested in Saudi Arabia have been charged with treason. That's a pretty serious charge.
 
Anyone know what the cost of production is in the Tar Sands? At sub $30/barrel it has to be way under water.
Edited by nuckin_futz
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11 minutes ago, nuckin_futz said:

The mother-of-all oil market busts is here: Talk of a 28% drop at the open

Sun 8 Mar 2020 17:05:40 GMT

 

Saudi Arabian price war will crush oil companies

MBS
 
The mother of all busts is unfolding in the oil market. WTI crude is already down 37% since the January high and it's about to get much worse. Monday's open will be ugly, with talk of a 28% drop at the open. There are daily limits so there's a good chance it just won't open but we will get an idea in ETFs, oil stocks and foreign markets.
 
Tweet

Saudi Arabia announced drastic crude price cuts on the weekend in a declaration of a price war after the OPEC+ cartel fell apart on Russia's refusal to lower production. Saudi official selling prices fell $8-$10.25 below Brent, which is the most in at least 20 years. They also hinted at hiking production by more than 2 million barrels per day.
 
The Kingdom at the same time appears to be fighting off a coup. Crown Prince Mohammed bin Salman arrested three royal family members on the weekend, including a brother of king. Rumors have resurfaced once again that the king is dead or gravely ill. Saudi Arabia also imposed a quarantine on al-Qatif city to halt the spread of coronavirus.
 
Even without a price war, the virus is a massive demand shock that could leave upwards of 5 million barrels per day unburned. Even if prices at the pump crater, don't expect a demand response if the virus continues to spread.

Add it all up and it's the perfect storm in oil. On top of that, US shale is already in the midst of a bust with $200 billion in debt maturing over the next four years. Russia and Saudi Arabia would love to see a sharp contraction in shale production, which has now almost-certainly peaked.
 
Looking at the oil chart, it has the potential to be extremely ugly.


oil

 

The first level to watch is $40 but that will surely break at the open on Monday and the crude could be a falling knife. The 2016 low was $26.05 but the measured target of the double-top at $65 is right around $20.
 
The selling won't end until the virus improves or we see massive production shut-ins from oil companies. Expect it to start with a wave of dividend cuts.
 
Saudi Arabia has rarely participated in a price war but one of the times it did was in 1998 and that sent crude as low as $9.85/barrel.
 
So the oil bust is here and now the question is what will be the collateral damage? The high-yield market is going to have a very bad day and who knows where the other vulnerabilities are.
 
 
***************
 
There is talk those arrested in Saudi Arabia have been charged with treason. That's a pretty serious charge.
 
Anyone know what the cost of production is in the Tar Sands? At sub $30/barrel it has to be way under water.

The break even. For new projects is slated at about $68 a barrel.  In SITU projects need just over $50 for decent margins.

 

I've spoken of this in various threads.  It's game on.  What this doesn't mention is that Gazprom gas all but finished their pipeline from Russia to China and new lines aren't far from completion from Russia to central and western Europe.  There's also the new facilities in the former port of Vladivostok shipping directly to Japan.

 

Russia effectively helped make OPEC a non entity with these new routes.  American production increases also are contributing to it.

 

There's no end to this route in the short term.  Areas of the world dependent on oil money are going to hurt a lot.  Sadly though, we don't see any real reduction of price at the pumps at all.

 

Yet

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Damn Trudeau anyway!

first he screws over Alberta and then he causes this to finish the job.

 

 

 

 

 

/s

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10 minutes ago, Warhippy said:

The break even. For new projects is slated at about $68 a barrel.  In SITU projects need just over $50 for decent margins.

 

I've spoken of this in various threads.  It's game on.  What this doesn't mention is that Gazprom gas all but finished their pipeline from Russia to China and new lines aren't far from completion from Russia to central and western Europe.  There's also the new facilities in the former port of Vladivostok shipping directly to Japan.

 

Russia effectively helped make OPEC a non entity with these new routes.  American production increases also are contributing to it.

 

There's no end to this route in the short term.  Areas of the world dependent on oil money are going to hurt a lot.  Sadly though, we don't see any real reduction of price at the pumps at all.

 

Yet

Russia versus Saudi for leadership of OPEC. Russia is helping Syria against Saudi funded rebels in Syria. What a tangled weave. 

At the end of the day neither of these countries can afford 30/40/50 or even $60 oil. It is not about the cost of production but the financial need by these countries. Both are desperate for more money. They will come to some kind of agreement. 

 

Does this disruptiion speed up the inevitable debt crisis? Failing businesses begat more failing businesses. Defaulting mortgages, job loss, falling government revenue. It could make 2008 look mild in nature and duration. As a fiscal conservative I have expected this for many years and have been laughed at for suggesting such. To me the numbers don’t lie. When the guy on the street realizes his government cannot save him all hell will break out.

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I'd think Saudi Arabia wins in a financial battle, aren't they one of a very few countries with surplus money in the bank?

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Posted (edited)

This will weigh on CAD big. Long gold is looking good.

Edited by Ronaldoescobar

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14 minutes ago, Boudrias said:

Russia versus Saudi for leadership of OPEC. Russia is helping Syria against Saudi funded rebels in Syria. What a tangled weave. 

At the end of the day neither of these countries can afford 30/40/50 or even $60 oil. It is not about the cost of production but the financial need by these countries. Both are desperate for more money. They will come to some kind of agreement. 

 

Does this disruptiion speed up the inevitable debt crisis? Failing businesses begat more failing businesses. Defaulting mortgages, job loss, falling government revenue. It could make 2008 look mild in nature and duration. As a fiscal conservative I have expected this for many years and have been laughed at for suggesting such. To me the numbers don’t lie. When the guy on the street realizes his government cannot save him all hell will break out.

Russia is not an OPEC member. They are the '+' in OPEC+.

 

I got to think right now MBS is the most hated man in the world as he has just destroyed the budgets of every oil producing nation on Earth. He is playing a very dangerous game here. He probably gets blown up or finds himself on the business end of a bone saw.

 

This is very bad news for Canada. Look for more rate cuts and probably sooner rather than later.

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23 minutes ago, Boudrias said:

Russia versus Saudi for leadership of OPEC. Russia is helping Syria against Saudi funded rebels in Syria. What a tangled weave. 

At the end of the day neither of these countries can afford 30/40/50 or even $60 oil. It is not about the cost of production but the financial need by these countries. Both are desperate for more money. They will come to some kind of agreement. 

 

Does this disruptiion speed up the inevitable debt crisis? Failing businesses begat more failing businesses. Defaulting mortgages, job loss, falling government revenue. It could make 2008 look mild in nature and duration. As a fiscal conservative I have expected this for many years and have been laughed at for suggesting such. To me the numbers don’t lie. When the guy on the street realizes his government cannot save him all hell will break out.

As stated by someone else.  Russia is the + in OPEC.

 

Te issue with Russia vs SA is that neither are democratic nations.  They can prolong this battle as long as they desire.  With Russia now about to have a number of direct lines to asian markets and Europe they can produce more while selling for far less without issue.

 

This will in fact exacerbate any debt issues and could in fact speed up the upcoming recession globally.  This is not the fault of anyone in power in canada it is just an inevitability due to the issues surrounding the global economy.

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7 minutes ago, nuckin_futz said:

This is very bad news for Canada. Look for more rate cuts and probably sooner rather than later.

As a guy looking to buy a house, I think my purchase price and mortgage rate is about to drop. Yay me, as long as it doesn't get so bad that my neighbour comes over and steals my stuff.

 

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8 minutes ago, gurn said:

As a guy looking to buy a house, I think my purchase price and mortgage rate is about to drop. Yay me, as long as it doesn't get so bad that my neighbour comes over and steals my stuff.

 

As someone who is going to renegotiate my mortgage in a few months and is already long on a non oil dependent investments this might benefit me personally as well. 

 

Also...  good luck Alberta. 

 

Image result for that's a real ouchie bro gif

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2 minutes ago, Gnarcore said:

As someone who is going to renegotiate my mortgage in a few months and is already long on a non oil dependent investments this might benefit me personally as well. 

 

Also...  good luck Alberta. 

 

Image result for that's a real ouchie bro gif

 

KJFKcuM.gif

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13 minutes ago, Warhippy said:

As stated by someone else.  Russia is the + in OPEC.

 

Te issue with Russia vs SA is that neither are democratic nations.  They can prolong this battle as long as they desire.  With Russia now about to have a number of direct lines to asian markets and Europe they can produce more while selling for far less without issue.

 

This will in fact exacerbate any debt issues and could in fact speed up the upcoming recession globally.  This is not the fault of anyone in power in canada it is just an inevitability due to the issues surrounding the global economy.

The need for revenue will force the Russians and Saudis to a reconciliation. 

 

It it will make no dif who is at fault of a debt crisis takes hold. That said I do blame every Canadian government that has deficit spent. The accountability is coming home to roost. Canadian dependency on the USA economy and an economy that depends on resource exports. An economy largely based on being a price taker with low margins and yet a people who think they have the financial strength equal to Americans. The USA have far higher margins built into their economy. Canada deals from a position of weakness and has done little to change this for decades.

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27 minutes ago, nuckin_futz said:

Russia is not an OPEC member. They are the '+' in OPEC+.

 

I got to think right now MBS is the most hated man in the world as he has just destroyed the budgets of every oil producing nation on Earth. He is playing a very dangerous game here. He probably gets blown up or finds himself on the business end of a bone saw.

 

This is very bad news for Canada. Look for more rate cuts and probably sooner rather than later.

Russia might have to liberate Saudia Arabia with some freedom bombs. The yanks probably won't considering that hell hole was Trumps first visit. 

9 minutes ago, Gnarcore said:

As someone who is going to renegotiate my mortgage in a few months and is already long on a non oil dependent investments this might benefit me personally as well. 

 

Also...  good luck Alberta. 

 

Image result for that's a real ouchie bro gif

Really? What did you use to make that post?

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17 minutes ago, Boudrias said:

The need for revenue will force the Russians and Saudis to a reconciliation. 

 

It it will make no dif who is at fault of a debt crisis takes hold. That said I do blame every Canadian government that has deficit spent. The accountability is coming home to roost. Canadian dependency on the USA economy and an economy that depends on resource exports. An economy largely based on being a price taker with low margins and yet a people who think they have the financial strength equal to Americans. The USA have far higher margins built into their economy. Canada deals from a position of weakness and has done little to change this for decades.

What if this is 4 months?  6 months?  What level of damage can happen at that point?  The largest OPEC nations and the two big + nations in Russia and America can withstand 2 or 3 quarters of sustained downturn without issues.

 

What level of damage can occur to the smaller nations and outlier nations in 3 quarters?

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13 minutes ago, Boudrias said:

The need for revenue will force the Russians and Saudis to a reconciliation. 

 

It it will make no dif who is at fault of a debt crisis takes hold. That said I do blame every Canadian government that has deficit spent. The accountability is coming home to roost. Canadian dependency on the USA economy and an economy that depends on resource exports. An economy largely based on being a price taker with low margins and yet a people who think they have the financial strength equal to Americans. The USA have far higher margins built into their economy. Canada deals from a position of weakness and has done little to change this for decades.

With 40 odd million people.  Vast mining, oil & gas reserves, but high extraction costs. In part due to small volumes of labour at high cost? Low margins in a fluid market may be our only outlet.

 

What other than natural resources is such an opportunity for Canadians in the world market?

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8 minutes ago, Warhippy said:

What if this is 4 months?  6 months?  What level of damage can happen at that point?  The largest OPEC nations and the two big + nations in Russia and America can withstand 2 or 3 quarters of sustained downturn without issues.

 

What level of damage can occur to the smaller nations and outlier nations in 3 quarters?

If it lasted for any length of time measured in months the consequences would be huge. Oil becomes secondary to debt crisis. Regime change. You know the drill on how internal crisis is deflected by external military adventurism. Instability breeds radicalism. 

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13 minutes ago, Warhippy said:

What if this is 4 months?  6 months?  What level of damage can happen at that point?  The largest OPEC nations and the two big + nations in Russia and America can withstand 2 or 3 quarters of sustained downturn without issues.

 

What level of damage can occur to the smaller nations and outlier nations in 3 quarters?

They can pool their money together and pay Russia to attack Arabia. 

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12 minutes ago, Canuck Surfer said:

With 40 odd million people.  Vast mining, oil & gas reserves, but high extraction costs. In part due to small volumes of labour at high cost? Low margins in a fluid market may be our only outlet.

 

What other than natural resources is such an opportunity for Canadians in the world market?

Low margin export economy can work in a healthy global economy but is still short sighted. In a down world economy it is much worse, lower margins and even questionable access  to markets as protectionism escalates. This is why IMO Canada should have a $1 trillion sovereign wealth fund instead of a $1 trillion debt. In a serious country this would be a national security issue. In Canada it doesn’t even warrant a debate. It is another reason why I think AB will separate and there won’t be that much fight about it. 

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1 hour ago, gurn said:

As a guy looking to buy a house, I think my purchase price and mortgage rate is about to drop. Yay me, as long as it doesn't get so bad that my neighbour comes over and steals my stuff.

 

If rates drop home prices might increase?

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Posted (edited)

Nice, pleasant culture there.

 

Putin got tired of the games, & now things get interesting.

Edited by Nuxfanabroad

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