oil wars

Toads Blame Russia For ‘Agressive Actions’ On Oil Market
South Front, Apr 6 2020

On Apr 3, the Toads blamed Russia for the instability on the energy market accusing it of launching an oil war. The official Toad news agency reported the following:

The Toad Minister of Foreign Affairs said that a statement attributed by media to Pres Putin of the Russian Federation, claimed that one of the reasons for the decline in oil prices was the Kingdom’s withdrawal from the deal of OPEC + and that the kingdom was planning to get rid of shale oil producers. The Minister affirmed that what was mentioned is fully devoid of truth and that the withdrawal of the kingdom from the agreement is not correct, but that Russia was the one that refused the agreement, while the Kingdom and 22 other countries were trying to persuade Russia to make further cuts and extend the agreement, yet Russia has not agreed. He also stressed that the Kingdom’s stance on shale oil production is known as it is an important part of energy sources and that the Kingdom is also seeking to reach more production cuts and achieve balance in the oil market, which is in the interest of shale oil producers, contrary to what was issued by Russia and its desire to keep prices low to affect shale oil. The Minister of Foreign Affairs expressed surprise at the distortion of facts, hoping that Russia would take the right decisions in the urgent meeting on which the Kingdom called yesterday to be held for OPEC + and the group of other countries so as to reach a fair agreement that restores the desired balance of oil markets in order not to subject energy markets to risks again.

In the light of these comments, it’s interesting to recall the chain of events that led to the current crisis. South Front already covered it in the analysis of Mar 10 (below). It is no secret that Russia is the side that did not agree to further cuts of the oil production during the March events. However, the Toads became the first and only powers to start agressive actions on the oil market, aiming to damage the interests of the other parties. Such a blatant lie demonstrates the madness of the current Toad leadership, which is scared by its weak position amid the ongoing crisis developing around the world. The Toad military is losing the war in Yemen and the Houthis (Ansar Allah) are conducting operations inside the KSA itself. The global economy is in the grip of the coronavirus crisis, which reduces the demand for energy resources and undermines the only real source of income of a majority of the Toad elite. At the same time, internal political instability is pushing the KSA to the brink of a deep political crisis that may lead to the collapse of the current regime, so Riyadh is making fierce attempts to cover up the failure of its own agressive action under a public screen of lies.

Toad-Initiated All-Out Oil War Could Lead To Collapse Of KSA
South Front, Mar 10 2020

Saudi Arabia launched an all-out oil war offering unprecedented discounts and flooding the market in an attempt to capture a larger share and defeat other oil producers. This “scorched earth” approach caused the biggest oil price fall since the war in the Persian Gulf in 1991. It all began on Mar 8, when Riyadh cut its April pricing for crude sales to Asia by $4 to $6 a barrel and to Pindostan by $7 a barrel. The KSA expanded the discount for its flagship Arab Light Crude to refiners in north-west Europe by $8 a barrel, offering it at $10.25 a barrel below the Brent Light Crude benchmark. Russia’s Urals Crude trades at a discount of about $2 a barrel under Brent Light Crude. These actions became an attack at the ability of Russia to sell crude in Europe. The Russian ruble immediately plummeted almost 10%, falling to its lowest level in more than four years. Another side that suffered from Toad actions is Iran, which is under strong Pindo sanctions pressure and often selling its oil via complex schemes and with notable discounts already. The Toads are planning to increase their output above 10 mb/d. Currently, they pump 9.7 mb/d, but they have the capacity to ramp up to 12.5 mb/d. According to OPEC and Toad sources soeakibg to the WSJ, Riyadh’s actions are part of an “aggressive campaign” against Moscow. The formal pretext of this campaign became the inability of the OPEC+ to extend output agreements. The Toads were seeking up to 1.5 mb/d in further cuts, but this proposal was rejected by Russia. After the inability to reach the new OPEC+ deal, the Toads became the first and only powers to take aggressive actions on the market. However, it is hard to imagine that the Toads would go for such an escalation without at least an order or approval from Faschingstein.

This came amid the detention on Mar 7 of two senior members of the Toad family, Prince Ahmed bin Abd’ul-Aziz, the younger brother of King Salman, and Mohammed bin Nayef, the king’s nephew. This development took place just ahead of the Toad offensive on the oil market, and was likely a tip of the ongoing undercover struggle between the pro-Pindo and pro-KSA factions of the Toad elites; and the pro-Pindo bloc seems to have the upper hand in this conflict. In this case, the real goal of the Toad campaign is not only to secure larger share of the oil market and punish Moscow for its unwillingness to accept the proposed OPEC+ deal, but to deliver a powerful blow to Faschingstein’s geopolitical opponents: Russia and Iran. Pro-Western and anti-government forces existing in both Russia and Iran would try to exploit this situation to destabilize the internal situation in the countries. On the other hand, the Toads may soon find out that their actions have backfired. Such economic and geopolitical games amid the acute conflict with Iran, military setbacks in Yemen and the increasing regional stand-off with the UAE could cost too much for the KSA itself. If the oil prices fall any further and reach $20 per barrel, this will lead to unacceptable economic losses for Russia and Iran, and they could and will likely opt to use nonmarket tools of influencing the Toad behavior. These options include the increasing support to Yemen’s Houthis with intelligence, weapons, money, and even military advisers, that will lead to the resumption of Houthi strikes on Saudi oil infrastructure. On top of these, the Toad leadership may suddenly find that the internal situation in the KSA is being worsened by large-scale protests rapidly turning into an open civil conflict.

Such a scenario is no secret for international financial analysts. On Mar 8, shares of Toad state oil company Aramco slumped below their initial public offering (IPO) and closed 9.1% lower. On Mar 9, they continued to fall, plunging another 10%. There appears to be a lack of buyers. The risks are too obvious. At the same time, the range of possible Pindo actions in support of the Toads in the event of such an escalation is limited by the ongoing presidential campaign. Earlier, Donald Trump demonstrated that a Pindo military base could become a target of direct missile strike and Faschingstein would not order a direct military action in response. Taking into account other examples of the current Pindo approach towards its vassals, Riyadh should not expect any real support from its Pindo masters in this stand-off.

Pindo energy secretary hopeful Toads & Russia to end oil row this week
Reuters, Apr 6 2020

FASCHINGSTEIN – Pindo Energy Secretary Dan Brouillette said on Monday that after speaking with the energy ministers of Saudi Arabia and Russia he hopes the countries will end their war over market share this week. Brouillette told Fox Business Network:

They are going to get together later this week and hopefully end this disagreement that started perhaps two or three weeks ago.

Oil prices have dropped as demand has crumbled on global economic shutdowns during the coronavirus outbreak, and as the Toads and Russia have pumped oil flat out in a war for market share. Brouillette said the United States is encouraging Saudi Arabia, which is the chair of the G20 this year, to convene a G20 energy ministerial meeting toward the end of the week “and I expect that that’s going to happen.” Brouillette spoke to Toad oil minister Abd’ul-Aziz bin Salman at the weekend, telling him the Toad-Russian battle for market share in the global oil has “major implications” for Pindostan and the world, the Pindo Energy Department said. The oil price drop means many highly leveraged Pindo shale drillers risk bankruptcies and oil workers face layoffs. Brouillette told Fox:

Some saw the actions to increase production as a direct attack on the Pindo shale industry.

He also said Pindo energy industry will have to adjust accordingly to reduced demand from the coronavirus outbreak. The Pindo and Toad boxtops agreed to continue talks over global oil markets through a G20 meeting in the “near future,” the department said in a readout of the call.

Alberta & Pindostan Discuss Slapping Tariffs on Russian & Toad Crude
Tim Korso, Sputnik News, Apr 5 2020

Trump claimed that the deal was not prolonged due to Russia and the Toads entering into a price war. Canada’s oil-rich province of Alberta is negotiating with Pindostan on the possibility of introducing North America-wide tariffs on Russian and Toad oil unless the two states strike a new OPEC+ deal soon, the province’s PM Jason Kenney revealed in an interview with the Financial Times. Kenney said:

OPEC+ started this fire and they have to put it out. We’re not going to surrender our industry and we’re prepared to go the distance here.

Kenney also shared that his province will actually be participating in the upcoming OPEC+ online conference and might even take part in production cut initiatives with it. While being independent on the issue of oil output, Alberta would still require approval from the Canadian federal government to enact continent-wide tariffs with Pindostan. The Pindo Department of Energy confirmed that the country was preliminarily discussing an option to introduce such economic measures, but no decision has been made yet. Trump previously stated that tariffs against Russia and Toad Arabia, are “one tool in the tool box”, which he might use if they don’t drop production by 15 mb/d. Trump also said he held talks with Putin and MbS on the issue of oil prices and suggested that both “love their countries” and “want to make a deal.” Oil prices dropped to levels of around $20 in March after global consumption had fallen due to anti-coronavirus measures and OPEC+ members’ failure to extend production cuts. Russia, one of the major parties to the deal, said it was never against extending it but suggested that Riyadh wanted to pressure shale oil producers with cheaper oil. The Toads denied having such intentions. The spokesman to the Russian president warned that a further increase in crude production could drive prices to a minimum as oil companies struggle to sell or store the excessive oil. He noted that some of them have already started to use tankers as floating containers for the oil that these companies can’t sell.

Trump threatens imposing tariffs on ‘oil coming from outside’
Joel Dryden, CBC News, Apr 5 2020

Trump has threatened imposing tariffs on crude imports “coming from outside” amidst the COVID-19 pandemic and the price war between Russia and the Toads. Trump told reporters during a COVID-19 briefing held Saturday:

If I have to do tariffs on oil coming from outside or if I have to do something to protect our, tens of thousands of energy workers and our great companies that produce all these jobs, I’ll do whatever I have to do.

Trump’s comments come a little more than a week after Alberta PM Jason Kenney called for an aggressive approach from governments across North America, floating the possibility of imposing tariffs on foreign oil exports. Federal PM Trudeau has yet to fully signal his approach to the price war, which has already sent the price of Western Canadian Select to record lows. Though Trump’s threat didn’t explicitly omit Canadian crude, it’s unlikely that would be the case under Pindo tariffs, according to Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy. Masson said:

The oil that Alberta produces, diluted bitumen, is the equivalent to heavy oil. And that’s what the Pindo refineries want. That’s why it’s very unlikely that Trump would try and impose a tariff on Canada, because it would just hurt his own refineries.

To Masson, the threat from Trump appears to be Pindostan staking out its position in what is sure to be a very complex negotiation with OPEC, Russia and other countries like Norway. He said:

[They all] have to figure out, how are we going to manage the market in essentially the worst crisis we’ve ever faced. That’s the big picture to me. They’re trying to establish whatever kind of leverage they can get.

Speaking during a press conference on Friday, Kenney said he had spent the last week talking to several “key decision makers” in the Pindo administration and Congress about a path forward, including the possibility of implementing a tariff on foreign oil imports. Kenney said:

[We’ve discussed] how to protect North American jobs from the predatory dumping of energy by the Saudis and the Russians.

Kenney said Alberta Energy Minister Sonya Savage would call a future online OPEC+ meeting with an “open mind.” That meeting, previously scheduled for Monday, has been postponed until Apr 9, OPEC sources told Reuters. He said;

But as I’ve said, it’s OPEC and Russia that started this fire, and they’ve got to put it out. They irresponsibly decided to maintain and even surge supply in the midst of a total cratering of demand. That’s why we’ve ended up with the lowest energy prices, in real terms, since WW2.

On Twitter on Saturday, Trump said that MbS had told him that he had agreed with Putin to reduce output by 10 mb/d or more. The countries have not confirmed that agreement.

Riyadh’s Price Dumping Didn’t Work, Only Joint Solution Can Revive Oil Market
Anonymous op-ed, Sputnik News, Apr 5 2020

As benchmark WTI prices hit around $20, Pindo shale producers have urged the Trump administration to introduce punitive measures against those responsible for the dumping. On Thursday, following a phone call between Trump and MbS, Riyadh called upon the OPEC+ group to hold an oil meeting. The conference, initially scheduled for Apr 6, was reportedly postponed until Apr 8-9. Meanwhile, international experts say that it is time for the Toads to get on board and join oil producers at the negotiating table. Professor of energy economics Dr Mamdouh G Salameh refers to a joint lobbying campaign kicked off by Pindo shale companies against Riyadh this week. He says:

This is not the first time that the Toads have attempted to crack down on the Pindo shale industry. When the Toads flooded the global oil market in the aftermath of the 2014 oil price crash, their former oil minister Ali Al-Naimi said then that his country’s declared objectives were to defend its market share and also to kill or failing that to slow down Pindo shale oil production. This time, when the Toads declared that they will again flood the global oil market, their objectives were to punish Russia and again to undermine shale oil production. Riyadh’s moves were understandable. Since its inception in 2008, the Pindo shale oil industry has been producing recklessly, even at a loss, thus depriving most of the oil-producing nations of the world of their livelihood. It is only fair that the shale industry shares the pain with other oil-producing nations who are suffering badly from the state of events. The Pindo shale oil industry was on the verge of bankruptcy long before the onset of the coronavirus outbreak. In a nutshell, there is not a hope in hell that the Toads can regain their market share, now or ever. Moreover, there is anti-Toad publicity in Pindostan now, with rising influential voices among Senators calling for imposing a tax or a tariff on Toad oil exports to Pindostan, with some Senators even urging the Trump administration to withdraw the Pindo military from the country because of the extensive damage to the Pindo shale oil industry by a Toad oil price war coming on top of the coronavirus outbreak.

Daniel Lacalle, a fund manager with a PhD in Economics, opines:

It is unlikely that Faschingstein would allow the Toads to squeeze the Pindo shale out of the energy market and or to accumulate shares in the Pindo oil industry this time. In any event,the Toads don’t have funds for relevant positioning in the market and in shale companies, and this would not be a solution. Riyadh’s behavior is fundamentally wrong, as they are likely to lose much more than they can gain from the oil price turmoil. The solution is collaboration with manufacturers who have a more logical view of the market. It is of utmost importance to reach a global agreement in which all private companies of Pindostan and the Gulf of Mexico, Pindo frackers and global producers will participate, but without Russia it will have no effect.

James L Williams, president of WTRG Economics, an Arkansas-based business management consultancy, agrees:

The Toads can regain market share, but only at great cost. They would have to produce enough oil to keep prices in the low to mid $20s and sustain that for two years. But even if they did this, it is not without risk. The last time prices collapsed, Pindo production declined because of lower investment in drilling. However, Pindostan improved its technology, and the break-even price for shale oil declined. Having agreed that current world consumption is at least 25 mb/d and more likely 30 mb/d lower than it was before the virus, so a 10 mb/d cut would be enough to balance the market in the 3rd or 4th quarter, but crude oil stocks will be exceptionally high and take some time to return to normal.

Davide Tabarelli, president of energy think-tank Nomisma Energia, does not believe in the success of the Toads’ market maneouvres either. He does not envision an opportunity for the kingdom to expand its portfolio of Pindo oil assets. He says:

To compete with Texas oil companies, it would take months of offering much lower prices. Only when Pindo domestic production falls below 10 mb/d from today’s 13 mb/d, the Toads may hope to increase supply. Given that prices are around $30, I think this is unlikely, because the Pindos are reluctant to accept Toad investments, and because the Toads themselves will now have problems with domestic financial deficits.

Francis Perrin, a senior fellow at the Policy Centre for the New South and the French Institute for International and Strategic Affairs, agrees:

Riyadh’s oil pricing policy has caused a lot of pain to Pindo frackers, forcing the Trump administration to seek a solution to the crisis. These talks are very important, as Pindostan, Russia and the Toads are the three largest oil producers, in this order. They represent together about one-third of the world’s crude supply, and about 40% of world oil supply. An agreement within OPEC+, or between OPEC+ and Pindostan, would be a very significant step from oil producers. They would send a positive message to the markets. They would not add a supply shock to the coronavirus demand shock, they would limit the damage. It would be a real success in a very difficult and unprecedented context. And the health crisis will not last forever. But I doubt that the reported measure of cutting the world oil out by 10 mb/d, or 10% of the present world crude production, would help rebalance the energy market in the coming weeks amid the demand shock caused by the coronavirus pandemic.

Dr Thomas O’Donnell, analyst and consultant on the global energy system, says:

Ideally, there would be some temporary agreement for a coordinated reduction in production between Pindostan, Russia and the Toads. The head of the Texas Railroad Commission, which is legally able to implement production regulation in Texas, which produces 40% of Pindo oil, is in favour of a deal with Riyadh and Moscow to jointly cut production, and he reports he has had positive discussions with both countries. Faschingstein’s participation in a coordinated cut with OPEC+ must be a political decision, which would require Trump making the move a matter of national security. A trilateral compromise between Washington, Riyadh and Moscow is likely to come at a price for all the players, but if there is no deal for a joint Pindo-Saudi-Russian production cut, oil market and also geopolitical tensions will become increasingly heated.

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