Monday, March 30, 2020

US pressurizes KSA in petrol price war

Saudi-Arabia opened the floodgates in march inundating the market with cheap petrol. It is a bold move with the aim to get rid of competitors, especially american shale oil producer, even though all stakeholders will bleed severely writes french newspaper Le Monde:

"The Trump administration is stepping up pressure on Riyadh and Prince Mohammed Ben Salman, known as "MBS", to stop increasing production. On Wednesday March 25, in a telephone conversation with the crown prince, US Secretary of State Mike Pompeo urged Riyadh "to rise to the brink of the situation and reassure" the markets.
But for the Saudis, this chaos is the perfect opportunity to get rid of American competitors. The rapid development of shale oil, in Texas in particular, has put the United States back at the center of the game and created an inextricable situation for the kingdom. Since 2014, the increase in American production is such that it always threatens to lower prices."

Saudi Arabias dangerous bet

After an agreement with Russia about the reduction of the oil production failed, KSA took the decision to flood the marked with cheap oil and start a price war.
The plan is to eliminate competitors, especially american shale oil producer. The plan is audacious and dangerous things french specialized blog "Transitions énergies":

"So it all started on March 4. Prince Abdulaziz ben Salman, Saudi Minister of Petroleum, is preparing in his suite at the Park Hyatt hotel what is arguably the most important negotiation of his career. He is experienced in exercise, subtle diplomacy as well as power relations and agreements negotiated in the anterooms. Oil producers are hated rivals and often have conflicting political interests, but they have something in common, their addiction to petrodollars.
But when Prince Abdulaziz meets his Russian counterpart, Alexander Novak, to negotiate a further joint drop in production to limit the fall in prices, the latter does not want to hear about it. And this will lead to one of the biggest earthquakes in the oil market since the shocks of the 1970s. Because Saudi Arabia then decides to launch its plan B, no longer limiting the quantities to keep the prices, but breaking the market to better control it afterwards.
The Kingdom has thus decided to monetize its gigantic reserves as quickly as possible rather than seeking to enhance them over time. It is also an indication that Saudi Arabia believes that the future of oil is bleak over the next few decades due to the energy transition. The world's leading oil exporter therefore deliberately chose to change the situation. He prefers to sell a lot of oil at low prices rather than a little oil at high prices. And can also bet that cheap oil will slow the energy transition. The Kingdom is the third producer (see below) but holds 25% of the world reserves, 70% of the additional production capacities and is by far the first exporter."