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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Trump May Join Oil Talks Between Russia And Saudi Arabia

President Donald Trump said he might join a discussion about oil production and prices with Saudi Arabia and Russia that, according to him, is ongoing.

“The two countries are discussing it and I am joining at the appropriate time if need be,” Trump told reporters as quoted by Reuters. He also said he had talked separately with Russia’s President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammed and that these talks had been “great”.

Oil has plummeted to $25 for Brent and $20 for West Texas Intermediate, but some U.S. grades are trading a lot lower than this: Louisiana Light, for instance, fell to as little as $5.85 a barrel over the last week of March, and Wyoming crude traded as low as $1.25 a barrel.

But even WTI at $20 is quite problematic for most producers in the United States, so it is no surprise there have been calls for production cuts. One member of the Texas Railroad Commission, Ryan Sitton, said he had discussed the matter with OPEC’s chairman, Mohammed Barkindo.

Earlier this week, executives from two large shale oil producers, Parsley Energy and Pioneer Natural Resources, wrote to the commission to request the imposition of obligatory production cuts. These cuts would be an unprecedented move that highlights the devastating effects of the oil price war that coincided with the Covid-19 outbreak, which has wiped out about a fifth of global demand, according to estimates from experts.

Meanwhile, however, Saudi Arabia said it was going to flood Europe with deeply discounted Arab Light, a move seen as an attack on Russia in one of its key markets, which doesn’t bode well for any negotiations. Demand in Europe is floundering because of the coronavirus outbreak, and refiners are cutting their orders of Saudi crude by 25 percent, Reuters reported, citing unnamed sources.

The Russians are not blinking. Moscow has promised up to a 500,000 bpd production increase and has assured the market that the country has enough resources to cover budget shortfalls at $25-30 oil for six to ten years. 

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on April 01 2020 said:
    Even discussions between the United States, Russia and Saudi Arabia might not stabilize the oil market and prices until the coronavirus outbreak is controlled.

    Each of the United States, Russia and Saudi Arabia as major players in the global oil market has an objective it wants to achieve from any discussions between them.

    The United States wants to save its shale oil industry from collapse by negotiating an end to the price war. It also wants higher prices up to $60 a barrel to ensure that US shale producers could cover their breakeven prices estimated to range from $48-$68.

    Russia, on the other hand, wants a substantial reduction in US shale oil production and end to the price war. For Russia, an oil price ranging from $45-$55 could discourage costly projects and, at the same time, allow demand to grow.

    Saudi Arabia, like Russia, wants a substantial reduction in shale oil production and prices exceeding $60 though it prefers prices above $85 to balance its budget before it ends its price war.

    The question is can these varied interests be reconciled. I don’t think so for one minute.

    If the United States wants to enlist Russia’s and Saudi Arabia’s help to stave off the collapse of its shale oil industry, there will have to be a quid pro quo. Russia would demand a lifting of some of the US sanctions against it including those on the Nord Stream 2 gas pipeline and also a substantial reduction in shale oil production.

    On the other hand, Saudi Arabia will also ask also for a substantial reduction in shale oil production before it agrees to end its price war.

    I don’t think that President Trump will agree to a major cut in shale oil production.
    The chances of US Congress agreeing to lift some sanctions on Russia and the US shale oil industry agreeing major production cuts are virtually nil. The Congress is currently very anti-Russia and will continue to be so for considerable time. US shale producers may unilaterally decide to cut their production.

    However, Saudi Arabia will be forced sooner or later to end its price war simply because it can’t win it against Russia and also because a continuation of the war could lead to a huge budget deficit estimated at $116 bn. To this could be added another loss of $200 bn being a 10% devaluation of Saudi Aramco’s shares raising the total to $316 bn. This could eventually bankrupt the Saudi economy and destabilize the country.

    As for the US shale oil industry, it may stay alive slightly longer on a life support machine provided by the Trump administration. It will never be allowed to die because of its economic and strategic importance to the United States.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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