On March 11, Reuter quoted Russian Deputy Minister of Energy Pavel Sorokin as saying that the Organization of Petroleum Exporting Countries (OPEC) had asked Russia to cut oil production by 300,000 barrels a day, which means that the total 600,000 cases a day.
|Saudi Arabia increased production but OPEC urged Russia to cut further.|
Pavel Sorokin said the implementation of OPEC’s output reduction requirements for Russia would “cause technical difficulties”. Russia expects oil prices will eventually stabilize at around 45-55 USD / barrel.
Last week, OPEC and Russia failed to agree on a deal to cut new oil production, prompting Saudi Arabia – the leading producer OPEC announced to increase production and reduce oil prices to just over 10 USD / barrel. aiming to win some new markets.
Oil prices immediately plummeted, disturbing the financial market.
In this situation, the Russian Government has urgently met and continued to promote dialogue with OPEC, affirming the contact with each other towards a more stable market.
According to separate sources in the US media, Russian officials decided to slightly increase oil production as a challenge to the response from Saudi Arabia. Saudi Arabia’s energy minister on March 11 ordered an increase in production of about 1 million barrels a day to 13 million barrels a day.
Saudi Arabia also refused to have a meeting with Russia in May or June to discuss a production cut. Riyadh said that if Moscow does not proceed to cut its output there will be no reason to continue to meet in the coming months, according to Sputnik.
The United Arab Emirates (UAE) also promised the possibility of increasing oil production to a record in April as a move to support Saudi Arabia to participate in the race to gain market share with Russia and America.
It is estimated that if the UAE also participates in this race, the amount of oil expected to complement the market is equivalent to 3.6% of global oil supply. The risk of excess oil in the market could drag oil prices down even further.
Mr. Trump wants to save oil prices but not?
In the US, falling oil prices have caused some rigs to close, while energy industry personnel have been cut.
This signal temporarily pushed the price up a bit. Meanwhile, the Trump administration shows little effort to intervene in oil prices for the current situation.
The Washington Post said the White House was considering a support package for the US shale industry but was strongly condemned by the US Petroleum Institute, the oil industry’s most powerful lobby group.
Specifically, the US newspaper said that oil prices dropped sharply at the beginning of the week, causing great losses for US energy investors.
Harold Hamm – who is said to have a personal relationship with President Trump – owns oil company Continental Resources that lost $ 2 billion in just one day of strong oil prices. He claimed to have contacted personally with the Trump administration to urge a support of shale oil industry facing the risk of collapse due to market manipulation of Russia and Saudi Arabia.
|A shale oil rig in Bakken, near Williston, North Dakota.|
Hamm said that the US government should consider any action that can be taken to protect US interests at this time, so as not to be harmed by any other government like Russia or Saudi Arabia. One of the recommendations given by Mr. Hamm related to investors’ access to low-interest loans because the majority of access to credit has been restricted.
In fact, such interpretation is not difficult to understand. Remember the 2014-2016 recession, many rigs have “survived” and grown due to the endless supply of credit and equity, provided by banks, investors and equity. private part. Major restructuring efforts have revived shale mining after a short period of recession.
However, this will make members of the Democratic Party unhappy. The Democratic Party is studying legislation to protect the financial security of working families affected by the spread of COVID-19.
Representatives of the Democratic Party in the House of Representatives have made a call to President Trump, affirming the first priority should be on the real needs of the American people: sick leave, unemployment insurance support, food security free COVID-19 testing and isolation treatment … These, of course, do not include financial bailouts for shale oil drillers.
Most surprising was the response from the American Petroleum Institute, the oil industry’s most powerful lobby group. The head of the institute disagreed with Harold Hamm’s initiative and said that the US did not need to respond to just one day of the energy market downturn.
Anne Bradbury, CEO of AXPC, an industrial group representing 25 independent oil and gas producers expressed their confidence in the free market system and did not seek a support package from the Government.
As a result, Mr. Trump seems to have done nothing for the US shale industry.
|US President Donald Trump sets aside a budget to deal with the COVID-19 epidemic.|
The President of the United States on March 10 said he would propose to Congress a measure to reduce income taxes and other “very important” measures to offset the negative impact of the COVID-19 epidemic on the economy.
At a White House meeting with health officials, Mr. Trump also said the US government intends to help airlines and cruise ships. No shale relief package was mentioned.
Only on March 11, did Treasury Secretary Steve Mnuchin say that aid was given to struggling industries, including airlines and cruises. As such, the oil industry should not be “described” as a bailout.
The only positive signal is that Mr. Trump has not “abandoned” the oil industry. Bloomberg quoted the notice from the US Department of Energy stated that before the recent fluctuations in the global oil market, they will suspend the plan to sell oil from the Strategic Petroleum Reserve.
Jess Szymanski, a spokesman for the US Department of Energy, said that the sale of oil from the Strategic Petroleum Reserve was designed to increase revenue for basic maintenance and to upgrade the oil market when needed. Faced with price hikes. But based on the current situation, it is not optimal for oil sales.
The lobbyists are pushing the Trump administration to buy oil to reserve for strategic US oil reserves to save prices in the current context. The final decision has not been made yet.
Without any additional support, the US shale industry will likely fall into “tragedy”.
James Hamilton, a professor of economics at James UC Diego, observed that most observers showed that the break-even price of US shale oil was lower than 30 USD / barrel. If prices are maintained at this level, crude oil production is unsustainable.
But US manufacturers insist that they will not be able to make shale oil below the threshold of $ 50 per barrel. Oil and gas account for about 7% of US GDP, with more than 10 million Americans engaged in the energy sector. This situation will keep it difficult for Washington to calmly look at Russia and Saudi Arabia into the war for the war because they were the first to fall.