Tuesday, March 24, 2020

OPEC+ Vs US Frackers: Not Over Yet -- March 24, 2020


March 25, 2020:

March 25, 2020:

Later, 10:41 p.m. CT: isn't this interesting? After posting the note below three items from twitter:
  • "Russia no longer considering adding production."
  • "So Saudi are not ready to go to 12.3 mbpd. Also suggests they will have increase Ghawar production to achieve it. Will be interesting to see how the 70-year-old field handles the extra stress over long periods."
  • "Saudis seek to speed up repairs at Abqaiq complex."
    • you mean to tell me this complex has not yet been fully repaired; the attack was six months ago
Original Post

Before we get started:
  • Saudi Arabia reported 205 new Wuhan flu cases in the past 24 hours (March 24, 2020).
  • The day before, Saudi Arabia reported 51 new cases in 24 hours (March 23, 2020). 
  • That's a four-fold increase in one day.
  • The number of cases is obviously severely under-reported. 

Facts or at least what I think are the facts (folks can fact-check me on these). Maybe I should call these observations:
  • Saudi Arabia and Russia were quibbling about less than a million bopd one way or the other
    • the argument was whether to extend the quotas after they expire at the end of March, 2020 (one week from now)
    • the argument was less about the quotas (and price) and more about protecting one's market share
  • a digression:
    • 30% of the market share at $70/bbl vs 35% of the market share at $20/bbl -- but we need to move on
  • Saudi Arabia's budget is based on $83-oil and that is after a cut in the budget; 
    • much evidence that the kingdom has been in financial difficulty for several years, maybe starting in 2014 (previously posted)
    • at one time, not many years ago, Saudi Arabia's budget was based on $100-oil;
    • Saudi Arabia cannot print rials (as opposed to the US which can print dollars) -- actually the country can print rials but you get the point
  • so far, no increase in crude oil has reached the US from Saudi Arabia;
  • to meet its export goals, Saudi Arabia will first empty its crude oil storage tanks;
  • after Saudi crude oil in storage is exhausted, Saudi has to increase production to:
    • increase exports by one to two million bbls /day to achieve its rhetoric to flood the world with oil;
    • increase production for domestic use (occurs every summer to run air conditioners)
    • increase production from the fields to replace oil for storage
All of this just in time for Wuha flu to hit the mideast. Saudi often fell short of production goals in the best of times; it will be interesting to see what the kingdom can do with the threat of Wuhan flu looming.

It's hard for me to believe that the world will remain in "lockdown" past April 30th. If the world returns to normal / begins to return to "normal" by May 1, 2020, oil demand will increase significantly.

At that time, one could see:
  • max oil demand in the US; summer driving season; economy gets back on track;
  • US injects $2 trillion in stimulus;
  • China injects $7 trillion in stimulus;
  • Saudi storage depleted;
  • Russia can't make up the difference (for any number of reasons);
  • Saudi production stressed (see above)
Disclaimer: I am inappropriately exuberant about the Bakken. 

The above will be added to "how we got here," linked at the sidebar at the right.

Wuhan flu is tracked here

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