Page 6 - NorthAmOil Week 12

NorthAmOil COMMENTARY NorthAmOil
US considers wading into Saudi-Russia supply war
The US is considering intervening in the oil supply war between Russia and Saudi Arabia with a view to coercing the two countries into cutting production
GLOBAL
WHAT:
The US is looking to intervene in the supply war between Russia and Saudi Arabia.
WHY:
Low oil prices are good for US consumers, but have put significant pressure on the country’s shale oil industry.
WHAT NEXT:
Oil prices could reach as low as $20 in the second quarter. Substantial spending cuts could lead to a sharp rebound after the affects of Covid-19 begin to dissipate.
THE Trump administration is considering intervening in the supply dispute between Russia and Saudi Arabia, reportedly looking at steps to coerce the pair into cutting production to prop up free-falling oil prices.
Oil prices have plunged to levels not seen since the early 2000s, as the coronavirus (COVID-19) continues to erode fuel demand. The end of more than three years of co-opera- tion between Russia and Saudi Arabia on sup- ply cuts earlier this month has exacerbated the situation. Both have announced plans to ramp up production next month after their previously agreed output quotas expire.
Intervention
US President Donald Trump has previously railed against Russia, Saudi Arabia and the rest of the OPEC+ group for making oil too expen- sive for US consumers. With many shale pro- ducers facing bankruptcy if current low prices persist, however, Trump appears to be shifting his position.
“You always get a little torn,” Trump said at a press briefing on March 19. “Until we became the leading producer, I was always for the person driving the car and filling up the tank of gas... If [prices] were too high, I would always raise hell with OPEC.”
Saudi Arabia had attempted to get the OPEC+ to deepen cuts next month, to support oil prices amid a collapse in demand as a result of the coro- navirus pandemic. Russia refused to back these measures, prompting Saudi Arabia and fellow OPEC+ member the UAE to announce plans to flood the market, causing oil prices to tank. Prices declined further last week, weighed down by the pandemic.
“It hurts a great industry and a very powerful industry,” Trump said referring to the impact on US shale producers. “At the appropriate time, I’ll get involved.”
Washington is contemplating a “diplomatic push” to convince its ally Saudi Arabia to cut its production, the Wall Street Journal (WSJ) reported citing official sources. To prevent Russia
from benefitting from this reduction, it will also threaten Moscow with sanctions, according to the newspaper’s sources.
The US has imposed a number of rounds of sanctions against the Russian oil industry since Moscow’s annexation of Crimea in early 2014. These measures include a ban on US companies assisting Russia on offshore Arctic, deepwater and unconventional oil projects and limits on the access of some Russian producers to inter- national financial markets.
Last month Washington also slapped sanc- tions on a Rosneft subsidiary that had been trading Venezuelan oil, helping to prop up the regime of President Nicolas Maduro. It sanc- tioned a second Rosneft unit earlier this month.
However, like the Obama administration before it, Trump’s White House has been reluc- tant to target Russian oil exports, fearing that doing so would plunge markets into chaos and escalate tensions with Moscow.
oil industry to a standstill, including a ban on businesses providing support valued at $5mn or more in a given year to a Russian oil project. This could be interpreted to cover oil purchases, which would jeopardise Russian exports.
In December, a US senate panel passed the
Defending American Security from Krem-
lin Aggression (DASKA) bill, first drawn up a
year and a half ago. Dubbed “the bill from hell,” Like the Obama it proposes drastic measures to bring Russia’s
DASKA is yet to pass either the US Senate been reluctant to
or the house, and after that it would need to be signed into law by Trump. In this process it could undergo revision.
Possible other sanctions against Russia are in the works, sources told the WSJ. But details on the punitive measures are undisclosed.
Production costs
Saudi Arabia’s oil is much cheaper to produce than Russian and US supplies. Its production costs, including gross taxes, capital spending, extraction and transportation costs, are only $8.98 per barrel, according to Saudi Aramco’s IPO prospectus last year.
target Russian oil exports.
administration before it, Trump’s White House has
P6
w w w . N E W S B A S E . c o m Week 12 26•March•2020