Member Info for MarcelKrell

For now, this is precisely the situation Saudi Arabia was hoping for—pain for other oil producers to bring about a change in action. Saudi Arabia, however, probably didn’t expect the prices to drop off quite so quickly, helped by the devastating effects of the global COVID-19 pandemic.

Without some incentive, and there may be one that the United States is offering, MbS has little reason to undo the damage it has intentionally inflicted in the oil markets.

https://oilprice.com/Latest-Energy-News/World-News/Can-The-US-Convince-Saudi-Arabia-To-End-The-Oil-War.html

When the OPEC+ deal fell apart a couple of weeks ago, it was Russia’s reluctance to cut more and for longer—as if they had restricted production to any great extent in the first place, overproducing nearly—if not every—month throughout the deal. Its rationale for refusing to cut and to cut more are not without merit. First, Russia’s oilfields cannot be turned on and off as easily as others, such as US shale. Second, cutting back production to manipulate the prices only works if the world’s largest producer—the United States—were to play along too. ***And it’s not***. Cutting back production further, Russia contends, opens the door for US shale to take even more market share.

Clear language.

But the words seem laughable, given that the low oil prices are precisely what Saudi Arabia is hoping to achieve.

Saudi Arabia has, for years, been doing the lion’s share of the production cutting that OPEC agreed on to hold up oil prices, at great cost to its own finances. Meanwhile, other OPEC nations such as Iraq, have done precious little to toe the OPEC line, and Saudi Arabia has had to cut more to offset the noncompliant members. Russia, too, has failed to live up to its part of the production cuts.

On Monday, executives from Russia’s top oil firms met with energy minister Alexander Novak for the second time in three weeks since the OPEC+ breakup and the price collapse.

Tatneft’s CEO, Nail Maganov, who boasted two weeks ago that even $8 oil is not critical for the company, told reporters after Monday’s meeting that it may not be economically feasible for Russian firms to boost production from April, due to the coronavirus pandemic.

“If it weren’t for the coronavirus, there would have been economic sense to increase production. Hardly anyone could have predicted such a collapse in prices,” said Maganov, quoted by TASS.

April will be interesting.

The collapse in oil prices and the outlook for severe demand destruction in the coronavirus pandemic may have some Russian companies rethink earlier policies to boost production as of April 1 when the OPEC+ pact expires, comments from a Russian oil executive suggest.

Admitting that the coronavirus pandemic hits economies and oil demand everywhere, Lukoil’s Fedun said that if OPEC and Russia had agreed to continue the cuts and cooperation, oil prices would now have been at around $50 a barrel.

" But U.S. shale isn't the only price-sensitive supply. Roughly half of the supply growth is now coming from outside the United States as well, mostly from deepwater projects in Norway, Brazil, and *Guyana*. "

"All of this suggests that the Russian leadership has accepted a pessimistic view of the current market and believes that prices need to spend some time below their equilibrium to temper higher-cost supply for both short-cycle shale and longer-cycle offshore products. The Russian government's position was recently made very clear by Deputy Energy Minister Pavel Sorokin. In an interview with Reuters, Sorokin said Russia intended to let market forces deal with the surplus, expecting initial signs of weakness in competing supply in four-to-six months. "

"This leaves a situation in which there are several plausible outcomes, with the most likely being that OPEC+ never reaches a deal to cut production and the physical market eventually corrects itself (as Russia anticipates). Within that scenario, Saudi Arabia's behavior becomes all the more crucial. Even without a formal deal with Russia, Riyadh could push OPEC or a smaller break-off group with other Gulf Arab nations to undertake a production cut, which would mean less financial pain for everyone, but particularly the Saudis, and a faster return to equilibrium. Such a cut could be done informally to avoid the appearance of capitulation, and could also still allow Riyadh the option of gradually taking more market share later on (though that would require keeping prices below $60 to prevent another resurgence of U.S. shale and other higher-cost production). "

"The government has since shown signs of its panic—oil prices are too low, and something must give, ***and soon***. That “something”, the U.S. hopes, will be Saudi Arabia."

"These rare developments and proposals all indicate one thing: the oil price war is hurting U.S. shale, and the government is worried. Energy security, energy dependence, and a significant portion of the economy are all riding on U.S. shale’s ability to outlast Saudi Arabia or Russia in the oil price war. "

"And while U.S. shale was the one to show remarkable fortitude the last time Saudi Arabia tried to squeeze it out of the market, the coronavirus component this time around, combined with what many see as an unhealthy debt load, have led to ***some question whether U.S. shale has what it takes this time around***."

Imo it hasn't, for the most part. And that is also good for TLW.

"This $23 per barrel is not sustainable long term—perhaps not even short term—creating a sense of urgency in the United States to address the problem.

"TNSTAAFL, (There's No Such Thing As A Free Lunch). This is one of my favorite acronyms and up to this point, I would have thought my oilfield brothers and sisters understood it well. We used to. What it means in this case, help- of this sort, will leave them worse off than they perceive themselves being now. The sad thing is…all they need to do is **crack a history book** (lol), or talk to one of us older oilies. It’s been tried before with disastrous consequences."

***The air begins to come out of the shale balloon***

"One of the puzzlements of our major oil producing competitors-OPEC, and Russia, is the lack of discipline in North American shale producers. Why will they continue to produce when they are losing money, confounds them. The oligarchies involved simply cannot fathom the “Wild West” market that reigns in the U.S. "

Shale IS dead. Remember: TLW is getting oil out of the sea for around $10,- in Ghana...

"" The blistering growth rate of U.S. shale was already running on fumes at the start of the year, before the coronavirus spread around the world. Drillers were struggling at $50 WTI. With prices so far below that level at this point, the wheels are coming off of the shale complex.
“When and if global oil markets stabilize, investors should remain deeply skeptical of a shale-sector turnaround, given the industry’s financially feeble performance over the past decade,” IEEFA analysts concluded in their report. “Cautious investors would be wise to view shale-focused companies as high-risk enterprises characterized by disappointing performance, weak financial fundamentals, and an essentially speculative business model.”

Shale has NEVER been profitable. So this must be the final dagger.

"A cross-section of 34 shale companies identified by IEEFA finds that they spent a combined $189 billion more than they earned over the past decade. That includes $2.1 billion in negative cash flow last year.

Over the past ten years, the shale industry has dramatically ramped up oil production, allowing the U.S. to become the world’s largest oil producer. “Yet in financial terms, ***this production boom has been an unrelenting financial bust***,” IEEFA analysts wrote.
Notably, the 34 companies included in the analysis – which included large names such as Hess, Marathon, Pioneer Natural Resources, among others – posted negative cash flow in ***every single year over the past decade***, IEEFA found. "

Unbelievable.

"That was all before the global pandemic and the collapse of the OPEC+ deal. With WTI in the mid-$20s, the shale industry is in a much more profound crisis. Prices may even go lower in the weeks ahead."

It seems that no one knows when shale will be (partly, for a longer period) knocked out:

"Now, Saudi Arabia is pumping and shale boomers are retrenching, slashing spending and idling rigs. Debt repayments are looming and while many have hedged against low prices, how long the money will last is an open question, as shale producers, too, have been burning cash for months if not years. And it’s not like they weren’t warned. Continental’s Harold Hamm said in 2017, when prices rebounded, that U.S. shale should be careful not to drill itself into the ground. But here is history repeating itself. Only this time it’s worse because the world is gripped by a deadly pandemic."

""The firm pointed to refineries cutting processing because they are running out of storage, such as Exxon’s Baton Rouge. “In such an environment, it is as possible for Brent prices to ***briefly*** go to $10 per barrel as it was back in 1986 or 1998,” JBC concluded. "

Short lived, like I said.

However, budget revisions are not over. The slide in spending, drilling and ultimately in output could deepen as capex cuts grow more pronounced. “There is no sugar coating it, U.S. oilfield activity will collapse with oil prices well below $30 WTI,” Raymond James said on Monday. The initial round of cuts put spending at about 45 percent below 2019 levels, the bank said. “However, the declines will be far more dramatic than these initial cuts and we stress that these announcements skew towards larger cap, better hedged and capitalized operators.”

https://www.stabroeknews.com/2020/03/23/news/guyana/tullow-has-no-plans-for-further-drilling-in-guyana-in-2020/

Already posted?

"Tullow has no **immediate plans** to continue drilling for oil here this year as it is still to further assess the results from three wells drilled last year, which the company has also written off."

Written off, but not 'written off'... hold is of course related to current situation for the most.

I also find it remarkable that TLW is holding up the last days… now even up 10% (for the moment).

But I'm "sure" that it will go down again… I think… (I hope)!
I comfort myself with the fact that I read that even Warren Buffet used to have problems with predicting the bottom of a stock. His strategy: he kept buying every time it went lower. But then again: HE knew what he was doing… ehehe.

MLaw1, funny you say that. I think you were not the only one. Me also wanted to wait for 5, expecting it would drop further, after I bought at 13...

In investing never happens how you think it will go. Maybe because it's a form of group-thinking... lol.

Everybody expects $10 in April, and I don't rule out things unfold different... sort of Larry Bird head-fake shot. :)

https://oilprice.com/Energy/Energy-General/Oil-Majors-Are-Preparing-For-10-Oil.html

"Growing U.S. oil production has frustrated the OPEC+ efforts to rebalance the market for the past three years. But the oil price crash is hurting the shale patch so much that companies are starting to cut budgets by 20-30 percent.

Production will slow down inevitably, but the huge demand destruction, which is just beginning in the world’s top oil consumer, the United States, is set to continue depressing oil prices at least until the coronavirus pandemic is contained.
Faced with such unprecedented demand flop, oil producing countries face a lot of pain in what promises to be an oversupplied market for the next months. In the U.S., the oil industry will suffer, in Saudi Arabia and Russia, the government finances will be hit.
With demand falling off a cliff, oil at $65 by the end of the year would need millions of barrels per day taken off the market through another coordinated action among oil producers."

https://oilprice.com/Energy/Energy-General/What-Will-It-Take-To-See-65-Oil-Again-This-Year.html

"Saudi Arabia and Russia are currently not backing down from the oil price war, even though their finances will be hurt by oil prices much lower than their fiscal breakevens.
The question is, which oil producer will see this overproduction as a price too high.
The U.S. is also wading into the debate, with U.S. President Donald Trump saying last week that “at the appropriate time, I’ll get involved” in the Saudi Arabia-Russia oil price war."