No doubt, this is a storm alright, a full-blown war, with no bullets. We’re wading into a subject we don’t know much about……… but we need to learn about, ASAP!
Petroleum is one of the top three imports/exports of every nation on earth. Remember, Saudi Arabia only has one product = oil. Russia has two products, Oil + weapons manufacture. As President Trump and the US Military annihilated ISIS, and Afghanistan begins to settle, the world is returning to peace. Well, peace is bad for an arms dealer. Add to the mix a virus, global pandemic, caused by China’s negligence ……
We’re in uncharted territory. Many of us have traded stocks, bought futures, and a few of us in this group sold stocks, gold, REIT’s, FOREX,…… The commodity guys, no problem,…… I knew a guy who blew $250K on silver futures in a single morning back in ’81……… He was never the same…….And we all knew a bond daddy (because those are the boys who pick up the bar tabs), but the oil contract guys…… hmmm…….. we stayed away from them. They were always a little squirrely.
Nonetheless, it is time to talk about what happened on Sunday night between Saudi Arabia and Russia, the agreed upon oil production of OPEC countries, price per barrel in the open markets, OPEC’s friends (Russia), how it tanked the USA market, and how the oil dominance of the USA affects geopolitics and creates ripples across the globe. Along the way, hopefully, we will all get up to speed on this subject.
Here’s the back story as I understand it: First and foremost, remember, crisis breeds opportunity. We’re all in a crisis right now, because of China, so…… look for the opportunity.
Remember the oil embargo of the 70’s and the birth of OPEC?
Well, in 2018, the USA became the #1Producer of Oil and LNG, in part, because of the Shale Revolution: https://www.timesrecordnews.com/story/opinion/2018/01/19/u-s-becomes-leader-oil-production/1048266001/ We were thrilled with President Trump and Sec, Rick Perry and their efforts to unleash American Energy.
American dominance in the energy sector was a stabilizing geopolitical force. It meant we didn’t have to fight wars in the Middle East…… because we had our own oil. OPEC fights didn’t matter to us anymore, because we could boost production and supply our allies. As the USA gained in strength, the other primary head oil producers, Saudi and Russia, fought for customers in the long shadow of American power.
So, about 3 years ago, Saudi Arabia invited Russia to join OPEC, not as a member but as a “friend”. https://www.forbes.com/sites/ellenrwald/2020/03/09/russia-will-beat-saudi-arabia-in-this-oil-price-war/#61ebf8c914a6 In the beginning, everyone got along just fine. Saudi lined up sales to China and Russia was making deals with Merkel in Germany.
Back in December ’19, the House of Saud released for public offering shares in Saudi Royal Aramco and it was widely hailed as the world’s most valuable company.
Over 20% of the Saudi public bought shares, and MANY in the Kingdom borrowed money to buy into the stock. https://www.forbes.com/sites/ellenrwald/2020/03/09/russia-will-beat-saudi-arabia-in-this-oil-price-war/#61ebf8c914a6 This guy, below, Salman Al Saud, the Energy Minister for Saudi Arabia, did a great job. His future looked bright.
Well……. from $36USD/share, the stock went up to about 38USD/share but began to drift downward……… reaching $29USD/share on Monday. Why? Because Aramco had huge contracts with China and China’s economy tanked because of the Wuhan virus……… or the WinnieThePooh Flu….. again, negligence of the CCP caused the problem. Secrecy of the CCP did not contain the contagion.
Back to the oil producers. When your customers don’t need to buy your little barrels of oil, life is not good. Saudi was in trouble, falling stock price of Aramco had 20% of the public a little worried. Economies all over the globe were retracting, decreasing demand for oil all over the globe because of China. By Mid-February the meetings of OPEC began. Saudi proposed a one million barrel a day price cut to stabilize production with demand……. otherwise, too much demand was pushing down prices. Russia saw this as a “personal problem” for Saudi and their customer, China. Vladimir, sensing opportunity, went all……… suspicious cat on Saudi.
“Russia clearly knew that Saudi sales to China had been hurt by Coronavirus and it figured that it should not have to cut its healthy production and sales to stabilize the market for everyone else.” https://www.forbes.com/sites/ellenrwald/2020/03/09/russia-will-beat-saudi-arabia-in-this-oil-price-war/#61ebf8c914a6
Because Russia was a friend of OPEC, Russia had a veto vote. If one member vetoed, then no one would lower production. Over last weekend, Russian Energy Minister, Alexander Novak, lowered the boom. No deal.
Mohammad was not a happy guy and swished his pretty robes.
Saudi Arabia then decided to cut the price at which it will sell oil to Asia and other markets, in a bid to increase its own sales and likely to punish Russia as well. News also came that Saudi Arabia would increase its own oil production in April to at least 10 million barrels per day, which is high, but still within its OPEC quota. The price of oil plummeted around 30% when trading opened Sunday evening, US time.
https://www.forbes.com/sites/ellenrwald/2020/03/09/russia-will-beat-saudi-arabia-in-this-oil-price-war/#61ebf8c914a6
Of all the OPEC countries, Saudi has the lowest cost of production and the greatest ability to ramp up production with excess capacity. Therefore, the decision was easy for Saudi. They were trying to grab new customers away from Russia. The antagonism, however, rattled the markets.
While the boys fight (Mohammad and Vlad), we will have excess capacity and more oil than we need. Inventories came in this morning at + 7 million. With the economies of the world making plans for “containment” of coronavirus (caused by China’s negligence), brokers anticipate lowered global need as the virus reverberates around the world. That means lower prices in the oil markets for the next several months.
And all of a sudden, our friends in Texas, Pennsylvania and Ohio (necessary for the election of 2020), and North Dakota, are in trouble. If oil remains below $50/barrel for an extended period of time, they’re out of business. Just a few minutes ago, report from the market floor on FOX Biz, we’re seeing hundreds of layoffs in the oil sector and an expected decrease of 300K barrels a day in production.
…………. Which fits in nicely to Russia’s grand overall scheme of destroying fracking in the USA. I remind you all of our report, almost exactly a year ago, March 6, 2019: OMG, Tom Steyer+Green Movement+ Hillary+ a whole bunch of Russians. The Mask Comes Off. https://wqth.wordpress.com/2019/03/06/omg-tom-steyergreen-movement-hillary-a-whole-bunch-of-russians-the-mask-comes-off/
We know real Russians have secretly funded the green movement and the anti-fracking movement in the USA because we tracked the money. Although we attribute the energy boom to President Trump, the signs of success in fracking were clearly apparent during the Obama Administration. The trajectory for American leadership in oil was bound to happen. Take a look at this article from back in 2012: https://www.independent.co.uk/news/business/news/us-to-become-world-leader-in-oil-and-gas-thanks-to-fracking-8307372.html
A fight for customers and dominance in the oil sector will be an all-out war and one which the USA must win. Countries such as Russia and OPEC nations tend to squander their natural wealth, fund terrorists and wars, cause disruption, and these leaders have not been kind to their citizens. It would be a good thing for a country like the USA to hold sway in this arena. Difficult to imagine President Trump standing on the sidelines and watching our position as leader of the energy sector cede to Russia and/or Saudi Arabia.
Can’t see it happening……..
Might be time to discipline the toddlers, Russia and Saudi, and get the kids out of the mud.
Please, t
