By Tsvetana Paraskova – Mar 09, 2020, 11:00 AM CDT
The oil market is heading into a whole different era now that Saudi Arabia and Russia are squaring off in an all-out oil price war following Friday’s failed OPEC+ agreement—and US$20 Brent Crude is now a real possibility, Goldman Sachs said on Monday.
Oil prices plunged by 10 percent on Friday after OPEC and its Russia-led non-OPEC allies failed to agree on how to handle the depressed demand amid the coronavirus outbreak. The Saudis and OPEC insisted on a massive 1.5-million-bpd cut through end-2020, but Russia refused to continue ceding more ground and market share to U.S. shale with the OPEC+ production cut deal, which hadn’t materially moved oil prices higher, especially with the slump in demand due to the virus outbreak.
On Monday, oil prices collapsed by 30 percent early in the day before recouping some losses to trade 23 percent lower at 8:00 a.m. EDT, after the Saudis slashed prices for all their major markets and signaled a rise in production as of April.
“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” Damien Courvalin, oil strategist at Goldman Sachs, wrote in a note to clients, as carried by Yahoo Finance.
The major demand shock from the coronavirus outbreak and the looming ‘pump-at-will’ policy will likely keep oil prices at very low levels, according to Goldman Sachs, which slashed its Brent Crude estimates to $30 a barrel in Q2 and Q3, “with possible dips in prices to operational stress levels and well-head cash costs near $20/bbl.”
“This completely changes the outlook for the oil and gas markets, in our view, and brings back the playbook of the New Oil Order, with low cost producers increasing supply from their spare capacity to force higher cost producers to reduce output,” said Goldman Sachs, as carried by Yahoo Finance.
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I think that the Saudis are betting that by flooding the market they will force Russia into production cuts.
I am not sure that this is a good bet.
Russia has prepared their economy to insulate themselves from worldwide fluctuations and sanctions. Their people have demonstrated the ability to endure much hardship and mostly I think that Putin’s ego will not allow him to be manipulated by a relatively small nation.
I think that is all bluff. Russia solely depends on selling oil and gas. Putin did nothing to protect Russia against low oil prices. As import will exceed export with a large margin, the Ruble will crumble.
Russia can only pump up oil at a high cost, as many wells are near depletion and all their equipment is old Soviet stuff. Transporting oil from some remote places is expensive, while the cost price of oil in Saudi Arabia is much lower.
Russia really is screwed if this will go on for too long. In the beginning they will burn foreign currency, but you cannot do that forever. If Saudi Arabia wants to, they can really wreck Russia.
Like I said, I am not sure but the debt to GDP is ratio in Russia is low at around 14 percent. There is almost no leverage in the economy.
Saudi Arabia needs $ 77-78 per barrel to balance it’s budget.
Wallstreet 7,8% down………………………………according Trump its fake news……..right.