Background.
Russia has a $570B fund to live off for now, but the Saudis can outlast them. Neither has much but petro to their economies.
Does Russia blink?
What do you mean “blink”. Saudi Arabia tried to break the shale oil industry once before and failed. They’re going all out on a second attempt. Russia has no voice in the matter.
I just bought gas for $1.94 and that’s after my state raised taxes on it. The coronavirus is already causing a drop in airline travel. If sports/entertainment events are shut down I can’t even guess how low the cost of oil will drop.
I would love to see the US stock up on oil reserves to keep the shale oil fields alive. That would even out prices and extend the savings into the future.
I’m wondering what pressure the rest of the world applies.
In the middle of a pandemic, you’re gonna have an oil war? Seriously?
It doesn’t help that the US has incompetent leadership. Competent leadership would be grabbing both parties by the ear and holing up at Camp David until an agreement is reached.
What if Russia and Saudi Arabia both see the value in crushing the US shale industry?
It’s not Russia and Saudi Arabia. It’s every oil producing nation on the planet. The “Oil War” consists of Saudi Arabia breaking with OPEC and dumping oil. Russia is going to get screwed. Their economy is significantly connected to the export of oil. It’s not a function of participating in it. Venezuela is going to start from screwed and go South.
If anything it will encourage Russia to nudge Iran into more hostilities with Saudi Arabia but thanks to recent events that’s not going to translate well at home.
All it can do to the US is cause short term shuttering of the more expensive wells. That’s how it’s always been. It’s not like we’re going to un-drill a well.
Russia already took a trillion ruble hit on their revenue between 2018 and 2019.
Currently it’s $33 a barrel. Adjusted for inflation that would be $5 in 1970 and oil was $20 barrel back then.
U.S. shale can go completely dormant and still not result in too much widespread pain. Some jobs lost but otherwise little direct impact. A few producers might close down, to be bought up cheap by some entity with the cash on hand able to wait the price war out. Prices go up and they start up again. Meanwhile, interestingly enough, the job loss impact will hit fast and hardest in much of Trump country - hurting Putin’s interest in keeping his stooge in power. Overall though America’s economy is diverse and not excessively dependent on oil production. Alaska’s screwed though.
Saudi Arabia and Russia though, their economies essentially are oil revenues. The former has more ability to increase production than the latter. And it costs S.A. fairly little to get their oil out. But the former also needs a higher price to balance their budget. Both have cash reserves and can take on debt.
It seems most pundits are thinking Russia will outlast S.A. (although one article described it as who’s going to blink first when both have cut their eyelids off).
I am not convinced.
Why exactly would we want to save the bacon (pardon the expression) of two autocratic countries? And how are low oil prices going to hurt the pandemic?
I wonder what the state of the oil reserve is. It wouldn’t seem that important now that we’re a net exporter of oil.
The danger is that a lot of producers seem to be in deep debt, and the industry could crash at low enough prices.
Maybe Russia will arrange for a vast array of drone attacks on Saudi Arabia’s oil production through a proxy country, at least I could easily see Putin doing that if it suited him.
Even more interesting the virus will hit large densely populated cities while the unemployed oil workers are hunkered down in rural America getting paid to stay away from crowds.
That much? Gasbuddy says regular at CostCo in San Juan PR is $0.61. Is that commonwealth’s tax status the driving force? I’ll know it’s serious here when California prices drop to that level. If Russia doesn’t nuke the Saudi oilfields first.
Sure, I’ll bite on the hijack. Nope.
It might hit cities first but the usual pattern of influenza, highest mortality in rural districts as a result of having an older and overall sicker with chronic disease population, (see this list by state and the predominance of Trump states in the top ten when sorted by influenza death rate) will be very exaggerated in any widespread COVID-19 outbreak. Moreover rural healthcare systems are, shall we say, stressed, and many hospitals in those districts shut down. Surge capacity is not there at all. I very much hope it does not happen but if it does the greatest carnage on a per capita basis will be in rural America.
I also would not put it past Russia to do a proxy strike on SA production.
You might want to double check on those prices. They use some kind of weird measurement of volume over there.
I don’t think either the SAs or the Russians are trying to crush US shale, meaning that that’s not their primary goal at this time. They would like to, but they realize they already tried it once and failed, and nothing has changed in that regard since then.
All this is is a game of chicken over cuts in response to the COVID-19 outbreak. SA is willing to cut some more but wants Russia to do the same. Russia balked. Now SA is trying to force them to go along with their share of the cuts by making the alternative as painful as possible.
I assume they will eventually make some sort of deal.
Imagine my embarrassment. That’s the price per LITER in Puerto Rico, so about $2.40 per GALLON - which is still less than California’s lowest ($2.53 / gallon) or average ($3.40). Puerto Rico is even slightly cheaper than low-tax Nevada’s best ($2.45). What a system!
@OP: >> Does Russia blink?
Putin is Russia. If Putin blinks, he’ll be ousted, so he CAN’T blink. Watch for bombs.
It’s dropped 20 cents in my area and it’s even lower in other parts of the state. Down to $1.64/gallon
I am skeptical about the idea of a price war shutting down the US shale industry in the long run. My sense is that it is a highly efficient and flexible industry. Certainly if the price goes and stays low many companies will shut down and maybe go bankrupt but once the price rises again, new shale companies should form pretty quickly particularly in an era of low interest rates.
Also worth noting that most of the world imports oil and a low oil price is like a stimulus funded by oil-exporting countries. In the US itself the net effect is probably quite small though in the short run depressed investment in the shale industry could slow down the economy as happened in 2016.