Russian Drive Minister Alexander Novak and Saudi Energy Minister Abdulaziz Bin Salman sign documents during a ceremony augment a meeting of Russian President Vladimir Putin with Saudi Arabia’s King Salman in Riyadh, Saudi Arabia, on October 14, 2019.
ALEXEY NIKOLSKY | SPUTNIK | AFP via Getty Tropes
An intensifying oil price war between Saudi Arabia and Russia has created “very painful” market conditions for the world’s largest rudimentary producers, analysts have told CNBC, with many braced for sliding revenues over the coming months.
Worldwide benchmark Brent crude traded at $32.97 Thursday, down almost 8%, while U.S. West Texas Halfway (WTI) stood at $30.40, around 7.8% lower. Oil prices have almost halved since the start of the year.
The downturn for unsophisticated futures comes shortly after talks between OPEC kingpin Saudi Arabia and non-OPEC leader Russia indigent down.
Markets had been hoping for an agreement between Riyadh and Moscow, as well as other OPEC and non-OPEC creators, in order to deepen oil output cuts and prop up prices.
The group’s unexpected failure to reach a consensus on production means led oil prices to crash on Monday.
President Donald Trump’s surprise announcement Wednesday to ban travel from continental Europe tread the WHO’s declaration that the coronavirus can now be described as a pandemic also acted as a catalyst for further oil price losses Thursday morning.
What does a payment war mean for US shale?
Most energy analysts have dismissed the idea that Saudi Arabia and Russia’s bonus war has been specifically designed to target U.S. shale, but the industry is expected to bear the brunt of the pain.
Securing America’s Prospective Energy (SAFE), a think tank that advocates for reducing U.S. dependence on oil, believes the American oil industry is the loser from the in the air price war.
“Saudi Arabia claims to be the swing producer to stabilize the market, but mostly they just cause backwards that hurt the free market and the ability to compete,” Robbie Diamond, president and CEO of SAFE, said via email curtly after OPEC and non-OPEC allies failed to reach an agreement.
“Our industry and the U.S. economy has no choice but to watch once again as Saudi Arabia tanks the worth of oil to suit its domestic priorities,” he added.
Trump initially welcomed the declaration of a price war between Saudi Arabia and Russia, barraging lower oil prices as good news for U.S. consumers.
Saudi Arabia has since signaled its intent to flood the market with undeveloped, unveiling plans Wednesday for state-owned Saudi Aramco to ramp up production to 13 million barrels per day (bpd).
It is thought such a take off for could prompt a wave of bankruptcies and investment cuts in the U.S. which, in turn, would have a noticeable impact on shale fabrication.
IEA says OPEC allies are in a ‘very, very difficult situation’
Some believe the worst hit from a sharp droplet in oil prices will be long-time allies of de facto OPEC leader, Saudi Arabia.
“My main worry today is not on shale,” Fatih Birol, administration director of the International Agency (IEA), told CNBC’s Steve Sedgwick earlier this week.
“It is mainly on some of the outstanding oil-producing countries who have not — despite the calls from the IEA many, many times — diversified their economies.”
Birol lead one to believed countries like Iraq, Algeria and Nigeria — all OPEC producers — were in a “very, very difficult situation” and leave require support from the rest of the world.
“They are facing major fiscal strains. Many of them choice have difficulties to pay the salaries for the public sector, spending for health, for education, which in turn may provide social constraints in those countries.
Iraq, OPEC’s second-largest producer, is thought to be particularly exposed to an all-out price war because it has one of the scant diversified economies of the producer group — despite relatively low production costs.
Iraq’s oil ministry said Tuesday that it ordain keep in touch with other OPEC and non-OPEC members in an effort to prevent an oil price collapse, Reuters dispatched.
What about the instigators of the price war?
Shortly after talks broke down with Saudi Arabia recent last week, Russia claimed it could withstand lower oil prices for as long as a decade.
Yet, while many be convinced of Moscow is in much stronger financial position to cope with a protracted period of lower oil prices than in sometime years, it is not thought to be in the best interests of Russia or Saudi Arabia.
“If you assume that the price difference between harmonizing and rejecting last week’s recommendation is $25 (a barrel) then Russia stands to lose a considerable amount of means by not endorsing the proposal,” Tamas Varga, senior analyst at PVM Oil Associates, said in a research note.
“There will finish in the money b be a point when the negative consequences of Russia’s decision will become unbearable for the instigator,” he added.
On Tuesday, Russian Vivacity Minister Alexander Novak appeared to keep the door open for Moscow and Riyadh to return the negotiating table in layout to stabilize markets.
Chris Weafer, a senior partner at Macro-Advisory, told CNBC’s “Squawk Box Europe” on Tuesday that a retaliation from the world’s second and third-largest oil producers would be inevitable.
“Even at $30, something is going to happen. The Saudis are growing to have to do something because they need a higher price. The U.S. shale industry cannot afford that low quotation.”
“We are not going to stay here. We can’t,” Weafer said.