International Hydrocarbon Wars: Russia, Saudi Arabia, US Shale (1st American Domino Falls, MBS Gets The Urge)

Discussion in 'The War Room' started by MVelsor, Mar 16, 2020.

  1. MVelsor

    MVelsor Leather Belt Platinum Member

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    This damn near had me in tears, @Stoic1.

     
  2. ElKarlo

    ElKarlo Steel Belt

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    Russia doesn't want to make any cuts. It's definitely a time to lower production.

    But I meant that Russia has been less reasonable as of late compared to SA. Crimea and all that
     
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  3. MVelsor

    MVelsor Leather Belt Platinum Member

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    Yeah, I mean Primus is ultimately reading it correctly but I'm in the camp that doesn't believe MBS "wanted this all along". If Russia had agreed to the cuts, Saudi Arabia wouldn't of crashed the market regardless; they would've made the damn production cuts. The US definitely wasn't going to keep drilling at the rate of the last few years, the COVID demand shock had already blown a substantial hole into everything as it was and would've been a major challenge on its own.
     
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  4. MVelsor

    MVelsor Leather Belt Platinum Member

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    Venezuela's PDVSA: The World's Worst Oil Company

    The extent of PDVSA’s mismanagement can be seen by taking a look at its production and reserve figures. Under the direction of Luis Giusti in the 1994-98 period, PDVSA’s production soared. But, that boom was cut short. In 1999, the socialist firebrand Hugo Chavez became Venezuela’s president and introduced Chavismo.

    With that, PDVSA’s oil output started a downward slide (see the chart below). That slide became a plunge after the coup attempt of April 2002. It was then that Chavez purged PDVSA of its professionals en masse and replaced them with “reliable” hands – those who worshiped at Chavez’s altar.


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    To determine whether PDVSA’s output drop is deplorable or not, we must look at the company’s proven reserves and the rate at which they are depleted. The depletion rate, which is determined by dividing annual production in any given year by the proven reserves in any given prior year, provides a key to understanding the economics of an oil company and the value of its reserves.

    As the chart above shows, PDVSA’s depletion rate has been falling like a stone since 2007. At present, it sits at 0.35%. That rate implies the median time to extraction and sale for a barrel of PDVSA’s oil is 198.6 years.

    Because of positive time preference and discounting, the value of a barrel of oil in the ground depends on the time taken to get it above ground. If, for example, the price of oil remains the same, a barrel of oil produced and sold today is worth more than a barrel produced and sold tomorrow. Given the incredibly low rate at which PDVSA is depleting its reserves, Venezuela’s reserves – the world’s largest – are essentially worthless.


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  5. HeffDoesWant

    HeffDoesWant Green Belt

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    Debt to GDP of the 3.
    Russia 17%
    Saudi Arabia 28%
    USA 108%


    2 players have more to lose and lower debt, tough times for US oil.
     
  6. ElKarlo

    ElKarlo Steel Belt

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    Russia was dumb to say no and SA was dumb to drive off the cliff.
    Covid shock was happening and should have been met with serious short term cuts by all
     
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  7. MVelsor

    MVelsor Leather Belt Platinum Member

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    The KSA's ease of production is just sick. These two damn things alone have been pumping 5+ mbpd for the last 65+ years and still have tons of juice left. Ghawar is a real champion. <45>

    Ghawar Oil Field (Arabic: الغوار), operated and owned by Saudi Aramco, is by far the largest conventional oil field in the world. It is located in Al-Ahsa Governorate, Saudi Arabia. Measuring 280 by 30 km (174 by 19 mi), the field has a producing capability of more than 3.8 million barrels per day and also produces approximately 2 billion cubic feet of natural gas per day.[1][2][3]

    Safaniya Oil Field (Arabic: حقل السفانية النفطي‎), operated and owned by Saudi Aramco, is the largest offshore oil field in the world. It is located about 265 kilometres (165 mi) north of the company headquarters in Dhahran on the coast of the Persian Gulf, Saudi Arabia. Measuring 50 by 15 km (31.1 by 9.3 mi), the field has a producing capability of more than 1.2 million barrels per day.[1]
     
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  8. ElKarlo

    ElKarlo Steel Belt

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    It's a beast for sure and will continue to be so.
    But they could have on their own taken a few hundred thousand barrels of the market and asked others to do something as well.
     
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  9. MVelsor

    MVelsor Leather Belt Platinum Member

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    They could've, but for the second time in five years they've thrown down the gauntlet on US Shale. I guess we're going to find out.
     
  10. Pseudo Sane

    Pseudo Sane Brown Belt

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    It's a futile struggle. Oil is not going back to $80+ a barrel for the foreseeable future. You can bank on it. Fracking wells are too easy to drill now, and the technical know-how isn't going to disappear. Even if the shale industry gets crushed by sub $20 oil (which I genuinely don't expect to occur), drilling will come back online when prices rise.

    Also, I don't think there is going to be as much short-term pain as people think. A lot of companies have hedged against a drop in the price of oil, which will help in the near-future.

    Anyway, I think American oil will be fine. This is probably a death-blow for Canadian production, though.

    Putin doesn't do things with only one strategic goal; he tends to make moves which he thinks will turn out well for him however things shake out. I actually think that Putin is probably more interested in the Saudis than America, tbh. Hampering American shale production is probably more of a bonus; he's hoping to take market share from the Saudis and to destabilize them.

    Russia's allies in the Middle East are largely Shia (Iran, Syria) and opposed to Saudi Arabia. Eroding Saudi influence would increase Russian power in the region enormously. I think Putin's calculus that Russian can survive rock-bottom prices longer than Saudi Arabia is likely correct.
     
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  11. MVelsor

    MVelsor Leather Belt Platinum Member

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    Trump’s Ultimate Weapon To End The Oil War

    The bill would immediately remove the sovereign immunity that presently exists in U.S. courts for OPEC as a group and for each and every one of its individual member states. This would leave Saudi Arabia, for instance, open to being sued under existing U.S. anti-trust legislation, with its total liability being its estimated $1 trillion of investments in the U.S. alone.

    The U.S. would then be legally entitled to freeze all Saudi bank accounts in the United States, seize all of its assets in the country, halt all use of U.S. dollars by the Saudis anywhere in the world and to go after Aramco and its assets and funds, as it is still a majority state-owned production and trading vehicle.

    It would also mean that Aramco could be ordered to break itself up into smaller, constituent companies that are not deemed to break competition rules in the oil, gas, and petrochemicals sectors or to influence the oil price.




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  12. Rod1

    Rod1 Titanium Belt

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    That would have the opposite effect considering OPECs price fixing is what keeps oil prices up, not to mention the whole effectively ending the petrodollar.
     
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  13. MVelsor

    MVelsor Leather Belt Platinum Member

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    Yeah, that bill was actually first introduced 20 years ago and has been floating in some iteration ever since, but it's kind of a delicate balance.

    The ‘No Oil Producing and Exporting Cartels Act’ (NOPEC) was last threatened by the U.S. in October 2018 when the Saudis had enabled the Brent oil price to remain above the key $70 per barrel level since March. Any sustained Brent price above $70 per barrel was – and is – regarded by the current Presidential Administration as being in an area where the benefits to U.S. shale producers of higher prices are outweighed by the relative damage done to the U.S. economy.

    How much impact do you think oil actually has on global daily dollar demand? Is that really it or is the United States just the most dominant military power in the world with the most open, innovative and productive economy on the globe thereby making USD the most convenient, liquid and reliable medium of exchange?
     
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  14. ElKarlo

    ElKarlo Steel Belt

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    Should just ask. We're protecting them from Iran after all we walk away and they are exposed.
     
  15. MVelsor

    MVelsor Leather Belt Platinum Member

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    It's all a bit dramatic, isn't it? Imagine the US Gov pulled those moves without even calling the Saudis first. Or Trump got all Big Dick Donny and ordered strikes that wiped out virtually all of their export infrastructure in a brisk 15 minutes? That'd boost demand.

    <36>
     
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  16. ElKarlo

    ElKarlo Steel Belt

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    Haha but I doubt that. It'd be more like turn off the pumps for a a bit we'll do the same. Get our back since we have yours. Trump as odd as he is, does make some decent deals for the US
     
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  17. vengeful

    vengeful Brown Belt

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    What does the debt of the country have to do with US oil when it's not government owned?
     
  18. MVelsor

    MVelsor Leather Belt Platinum Member

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    Yeah, something has to happen for these producers to finally generate consistent cash flow in the right direction. After getting a taste of this upstream oil game, it's just not something I want to let go of. I've fallen too in love with the idea of energy independence, net exporter status and all of the geopolitical leverage (plus economic) benefits those bring. I want the US holding top spot of all three critical sectors, and energy is the crown that's missing.
     
  19. ElKarlo

    ElKarlo Steel Belt

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    I agree. The US definitely should be energy independent. It has freed us from having to be the world police.
    What if the US in some way joined OPEC? That might solve the problem. As now higher prices are ironically good for the US now. Man this is weird saying this
     
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  20. MVelsor

    MVelsor Leather Belt Platinum Member

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    All we can do is wait and see what happens over the next couple of weeks and months. On another (far off) note: this according to an Arrian account; around the time Hephaestion fell sick, died and got his fabulous* $1.5 billion equivalent funeral. <45>

    “Near Babylon, Alexander constructed a harbor by excavation to afford anchorage for 1,000 ships of war; and adjoining the harbor he built dockyards. Miccalus the Clazomenian was dispatched to Phoenicia with 500 talents to enlist some men and purchase others who were experienced in nautical affairs.

    He made these preparations for the fleet to attack the main body of the Arab and planned to occupy Arabia under the pretext that they were the only barbarians of this region who had not sent an embassy to him or done anything else becoming their position and showing respect to him. But the truth was, as it seems to me, that Alexander was insatiably ambitious of acquiring fresh territory.”


    [​IMG]
     
    Last edited: Mar 23, 2020

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