Register

Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on February 4, 2016

Bookmark and Share

A Saudi-Russian Oil Détente? Not Likely

A Saudi-Russian Oil Détente? Not Likely thumbnail

Moscow’s call for talks went nowhere, but oil prices jumped.

Most oil analysts and traders were intrigued when Russia’s energy minister signaled on Jan. 28 that the Kremlin wanted to discuss oil production cuts with OPEC. After all, limiting supply may help bolster the collapsing price of crude, which is hurting all major petroleum powers. Yet no one was surprised when the Saudis didn’t jump at the chance to meet with the Russians.

The Saudis have insisted that OPEC won’t cut output unless other major exporters like Russia, the world’s top producer, reduce output as well. “Russia has zero credibility with OPEC and with Saudi Arabia in particular,” after promising cuts during previous crises and then failing to deliver, says Citigroup analyst Seth Kleinman. Russia pledged to curb output when oil crashed in 2001 but instead increased its crude exports while Saudi Arabia cut back. The Russians did the same in 2008, leaving OPEC to shoulder the burden of output reductions.

A Saudi-Russian agreement also would require more than economic calculation. President Vladimir Putin supports Syrian ruler Bashar Al-Assad, while the House of Saud backs rebels seeking his overthrow. And if the Saudis cut their production, they’d be providing an opening for Iran, an Assad ally. Iran has been ramping up crude exports after sanctions were lifted last month.

A deal is not only “highly unlikely,” in the estimation of Goldman Sachs, but “self-defeating” for the Saudis. By cutting production now and boosting prices, Saudi Arabia would effectively bail out U.S. shale producers just as the Saudi strategy of keeping prices low to squeeze them out of the market is beginning to work, Goldman’s Jeff Currie argues. Shale will buckle if the Saudis stay the course: The International Energy Agency predicts that non-OPEC production will slump this year by the most since 1992.

Citigroup’s Kleinman suggests that setting up an actual conference may no longer be the point. Russia has always said it can’t easily cut production for technical reasons—restarting oil wells is a lot harder in frozen Siberia than in the Arabian desert. Russian oil companies prefer to keep pumping at full throttle. The country’s publicly listed companies are less willing to curb supply than the state-owned champions of the Persian Gulf. Leaving the “heavy lifting” to OPEC has usually paid off for the Kremlin, Kleinman says.

So why even float the idea of rapprochement? The Russian announcement, plus rumors among traders of what Kleinman calls a “mythical agreement” between Russia and Saudia Arabia, pushed oil prices up 20 percent from their late January lows. Planting the possibility of an end to the oil war in traders’ minds could be an end in itself. “It raises the question of whether this is just being done in a desperate attempt to prop up the oil price,” Kleinman says. “It also raises the question of how long that strategy is going to work. Talk is cheap.”

Financially strapped Venezuela, an OPEC member, continues to push for production cuts. A Venezuelan report on Feb. 3 said six OPEC members, including Iran, and two non-OPEC countries, including Russia had agreed to meet later this month. Without Saudi support, they’re unlikely to agree to anything meaningful.

bloomberg



10 Comments on "A Saudi-Russian Oil Détente? Not Likely"

  1. shortonoil on Thu, 4th Feb 2016 4:18 pm 

    “A deal is not only “highly unlikely,” in the estimation of Goldman Sachs, but “self-defeating” for the Saudis. By cutting production now and boosting prices, Saudi Arabia would effectively bail out U.S. shale producers just as the Saudi strategy of keeping prices low to squeeze them out of the market is beginning to work, Goldman’s Jeff Currie argues.”

    The media puts forth a continuous stream of completely unadulterated crap to its readership. Saudi Arabia is not going to spend $175 billion per year to put out of business producers that produce an entirely different product, and which sells to an entirely different market. LTO is as much like Saudi crude as Shetland Ponies are to an Arabian race horses. The similarities stop at horse.

    LTO is a very light hydrocarbon that is used as a diluent, and feed stock. Its API is > 45. It is used to thin heavier hydrocarbons like Canadian bitumen to allow it to be transported by pipe. It is used as a feedstock to make hundreds of different products from paint to plastic pipe.

    Saudi’s light sweet crude has an API 45, and the heavier ones, API < 40, deliver entirely different products as show in the graph below:

    http://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/energy/images/eneene/sources/petpet/images/refraf1-lrgr-eng.png

    Saudi's light sweet crude, and LTO are entirely different products that sell to entirely different markets. Saudi's crude is no competition to LTO and LTO is no competition for Saudi's crude.

    Goldman Sachs is an unscrupulous pack of thieves who have no qualms about lying to their clients, or the public if it serves their purposes. They, and others in the shale financing business will continue to push the Saudi/ US LTO myth for as long as they can find investors that are credulous enough to believe them.

  2. penury on Thu, 4th Feb 2016 4:38 pm 

    you might also consider Syria. SA is talkiing of sending in troops.

  3. Boat on Thu, 4th Feb 2016 7:08 pm 

    short,

    Russia has a big variety of oil. As usual you write to fit a narrative instead of just telling the facts. Here is a link you can learn from.

    https://www.eia.gov/beta/international/analysis_includes/countries_long/Russia/russia.pdf

  4. Apneaman on Thu, 4th Feb 2016 7:39 pm 

    Das boat, see that quote at the beginning of short’s comment? Regarding SA vs U.S. shale producers? That’s what he was commenting on. Fuck are you thick read-tard.

  5. makati1 on Thu, 4th Feb 2016 7:59 pm 

    Some see only what they want to see. Others see the whole forest. Bloomberg and Goldman are both habitual liars and thieves. Goldman says it and Bloomberg backs it up, as if either have any credibility left.

    Short has it correct. All you see in the US MSM is bullshit in ever higher and smellier piles. As we approach the end, the cries will be louder, shriller and continuous. Wait and see.

  6. Nony on Thu, 4th Feb 2016 11:56 pm 

    Just took my first double penetration.

  7. Davy on Fri, 5th Feb 2016 1:43 am 

    “Citi: ‘We Should All Fear Oilmageddon”
    “A feedback loop of the U.S. dollar, crude, capital flows, and emerging markets.”
    http://www.bloomberg.com/news/articles/2016-02-05/citi-we-should-all-fear-oilmageddon

    “It appears that four inter-linked phenomena are driving a negative feedback loop in the global economy and across financial markets,” the analysts write, citing the resilient U.S. dollar, lower commodities prices, weaker trade and capital flows, and declining emerging market growth.”

    “It seems reasonable to assume that another year of extreme moves in U.S. dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policy makers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks,” the analysts add. “Corporate profits and equity markets would also likely suffer further downside risk in this scenario of Oilmageddon.”

  8. shortonoil on Fri, 5th Feb 2016 8:45 am 

    “short,
    Russia has a big variety of oil. As usual you write to fit a narrative instead of just telling the facts. Here is a link you can learn from.”

    Now what exactly does that have to do with the post above? You are really starting to lose it! Anyway, Russia has some huge condensate fields, condensate is not LTO. Condensate is produced from a gas, LTO is a liquid extracted from reserve rock. Maybe you can’t tell the difference? If you are still have problems with the concept fart, and spit at the same time. That should help you to differentiate between the two.

  9. Joe D on Sat, 6th Feb 2016 12:12 am 

    “If you are still have problems with the concept fart, and spit at the same time”.

    That won’t help him, all his farts are wet ones.

  10. Kenz300 on Mon, 8th Feb 2016 7:54 am 

    Climate Change is real…… utilities need to deal with the cause (fossil fuels)

    100% electric transportation and 100% solar by 2030

    https://www.youtube.com/watch?v=RBkND76J91k

Leave a Reply

Your email address will not be published. Required fields are marked *