Are the Americans blinking first in the great global oil price war which is making the impact of the COVID-19 pandemic in markets worse?
The Trump administration plans to send an energy Department official to Saudi Arabia to monitor the situation and try to engineer an end to the war, while a regulator from the top oil-producing state of Texas says the rare step of looking at production cuts is being considered.
And now there’s news that US shale producers have started talks with OPEC about production cuts – that’s a development that won’t go down well with Donald Trump, not unless he can see a political benefit in any deal.
Seeing the Saudis have ignored entreaties from the US and others to stop the price and volume war, the move by the Trump administration is heading for failure.
Media reports say that if the Texas regulators intervene to curb output, it would be the first such move in decades.
OPEC secretary-general Mohammed Barkindo met Saturday (according to the WSJ) with Texas Railroad Commissioner Ryan Sitton, whose agency oversees America’s biggest oil-producing state.
US production is currently running at around 13 million barrels a day – the Saudis are around 10 but want to boost this to 12.3 million. Russia is though to be around 10 million a day.
Saudi Arabia and Russia are locked in a war for global oil market share after their three-year deal to restrain output collapsed this month.
The Saudis have vowed to increase production to a record 12.3 million barrels a day and has chartered numerous tankers to ship oil around the world, pushing prices to 20-year lows this week.
Russia has said it will increase production and Russian media reported on Friday that President Putin will not accede to requests to end the price and volume war.
“The Kremlin accused Saudi Arabia of blackmail in insisting that they cut production,” he told MarketWatch. “Now, Saudi Arabia is looking to borrow money to ride out the storm.” The Saudi government plans to raise the debt ceiling to 50% of GDP from 30%, Reuters reported on Friday.
Bloomberg reported the same day said Russian President Vladimir Putin will refuse to submit to what his government sees as oil blackmail from Saudi Arabia.
And the Wall Street Journal’s report that the Texas Railroad Commission, the long time but low key regulator of oil output in the state, received a number of requests four production curbs from producers under pressure. But that’s likely to be opposed by the rest of the industry.
And weekly data from Baker Hughes, an oil services company showed a large fall of 20 in the number of rigs rilling for oil (19) and gas (1) in the US last week. The oil-rig count fell 19 to 664 last week, down 19% in the past year or 160 rigs.
That’s the largest this year and indicates there’s a fall in fracking production coming, especially from the big producing areas such as the Permian in West Texas and Eastern New Mexico.
Oil futures fell sharply on Friday for the second time in a week and US West Texas (WTI) prices were down 29% for the week—the largest weekly loss since 1991.
The price for WTI settled for April delivery fell $US2.69, or 10.7%, to settle at $USS2.53 a barrel in New York on the contract’s expiration on Friday. May WTI crude, the new front month, fell $3.28, or 12.7%, to $US22.63.
That then slumped further in late trading, falling under $US20 a barrel to settle at $US19.84.
May Brent crude fell $US1.49, or 5.2%, to $US26.98 a barrel in Europe after rising on 14.4% Thursday. On Wednesday, it posted its lowest finish since May 2003.
