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Why Oil Prices Could Fall to $20 and Saudi Arabia Will Emerge on Top

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Oil markets have been rocked by two simultaneous events. The novel coronavirus has knocked out millions of barrels worth of demand for oil, and a supply war between Saudi Arabia and Russia has added millions of barrels of supply.

For the past week, most analysts have treated these developments as disconnected events. The supply war seemingly had more to do with a clash of personalities within OPEC and an allied group known as OPEC+ that includes Russia. The hope was that “cooler heads will prevail” and everyone will agree to a supply cut, so prices go back up.

But Saudi Arabia’s move to boost supply, to an expected 12.3 million barrels a day in April from 9.7 million last month, now looks like a more-calculated move to take advantage of the demand drop and grab a more substantial chunk of market share. Others also see a longer drawn-out supply war.

“There has apparently been no progress in attempts to mediate between Saudi Arabia and Russia, with sources saying that an OPEC+ technical meeting planned for Wednesday had been called off,” said Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald Europe. “Neither side appears likely to blink in the short term, with Saudi Aramco stating in an earnings call that it was likely to sustain higher output through May and was ‘very comfortable’ with $30 oil.”

That dynamic is likely to push the price of Brent crude down to $20 in the second quarter, according to Jeffrey Currie, the head of commodities research at Goldman Sachs. He had previously had a price target of $30. Oil use is already down about 8 million barrels per day, and supply is likely to increase by 3 million barrels at peak, Currie estimates. Brent crude, the international benchmark, could even become cheaper than West Texas Intermediate, the U.S. benchmark, as Brent supplies flood the market and WTI supplies decline.

Near midday Eastern time, Brent futures were down 0.2% to $29.99. West Texas Intermediate crude was up 0.5% to $28.76.

In 2014, when Saudi Arabia last increased production to slow the growth of U.S. shale production, it led to a drawn-out battle that failed to really make a dent in market share. U.S. producers with relatively weak operations were able to stick around and keep drilling once prices rose again. After a one-year dip, U.S. production rebounded quickly. This time, already low prices mean that U.S. producers will likely have to give up much more quickly.

“With oil demand down almost 5 million [barrels per day] at the time, a production cut was not economically feasible,” Currie wrote of the 2014 situation. “In contrast, with nearly 3.5 million barrels per day of OPEC+ spare capacity, the demand shock plus their spare capacity was now enough output to entirely undercut the 7.7 million barrels per day of total shale output—an opportunity OPEC has not had since 2012.”

Some analysts have predicted that Saudi Arabia will eventually have to let oil prices rise, because the country’s government budget is funded largely from oil proceeds and cannot be balanced unless oil prices at least double. But Currie expects Saudi Arabia to wait this out, and actually emerge in much stronger position a year or so from now.

“Assuming this rationalization occurs over the next year (which was one of our top themes for 2020 even before this), the industry is likely to emerge in a much more healthy position with many of the zombie companies that were a dead weight on returns removed, even paving the way for an attractive international offering of Saudi Aramco,” Currie wrote.


3 Comments on "Why Oil Prices Could Fall to $20 and Saudi Arabia Will Emerge on Top"

  1. Lord Percival on Tue, 17th Mar 2020 11:25 pm 

    This is why we need to put the international jews in the ovens now!, starting with Michael Bloomberg.
    The judens will buy everything soon and own the people again!

  2. makati1 on Wed, 18th Mar 2020 2:11 am 

    “Jared Kushner, a New Jersey slumlord and embarrassment, barely got into college, requiring a massive bribe from his family’s mob backed enterprises. Now he is responsible for America, and to an extent, the world’s survival.

    Kushner immediately called a doctor he knows who works in an emergency room, someone with no experience in epidemiology but at least a medical license of some kind. That doctor turned to Facebook and posted: “The person who is advising the president asked me to come up with ideas, can anyone tell me what to do?””

    “The Gates Foundation, the WHO and the European Commission are benefactors of the Pirbright Institute which owns the bio-safety lab-level 4 lab (BSL-4) in China which owns the coronavirus patent. The US patent application was filed in 2015 and granted in 2018. It is worth noting that the Fort Detrick bio weapons lab in Maryland with a history of violations, was shut down in August, 2019 due to ‘safety concerns related to a ”loss of pathogens.”

    The BSL Lab standard is of the highest bio-hazard level and is qualified to handle the “world’s most dangerous pathogens.’ It is the first of its kind in China and is located twenty miles from where the coronavirus is said to have originated. However, it has also been determined that the US is the only country known to have all five strains of coronavirus from which all others are descended thereby suggesting more of a US role in the pandemic.”

    It just gets curiouser and curiouser Alice…

  3. Davy on Wed, 18th Mar 2020 4:51 am 

    “Visualizing The Secret History Of A Coronavirus Bioweapon” zero hedge zero hedge pic great game india hypothesis of covid19 history

    “The below visualization The Secret History of Coronavirus Bioweapon is based on GreatGameIndia‘s exclusive report Coronavirus Bioweapon – How China Stole Coronavirus From Canada And Weaponized It. The Saudi SARS Sample On June 13, 2012 a 60-year-old Saudi man was admitted to a private hospital in Jeddah, Saudi Arabia, with a 7-day history of fever, cough, expectoration, and shortness of breath. He had no history of cardiopulmonary or renal disease, was receiving no long-term medications, and did not smoke. The Canadian Lab On May 4, 2013, a sample of this Saudi SARS (aka novel Coronavirus) from the very first infected Saudi patient arrived in Canada’s National Microbiology Laboratory in Winnipeg via Ron Fouchier of Erasmus Medical Center in Rotterdam, Netherlands who sequenced the virus sample. Chinese Biological Espionage In March 2019, in mysterious event a shipment of exceptionally virulent viruses from Canada’s NML ended up in China. The event caused a major scandal with Bio-warfare experts questioning why Canada was sending lethal viruses to China. Four months later in July 2019, a group of Chinese virologists were forcibly dispatched from the Canadian lab – the only level-4 facility equipped to handle the world’s deadliest diseases where Coronavirus sample from the first Saudi patient was being examined. Xiangguo Qiu The scientist who was escorted out of the Canadian lab along with members of her research team is believed to be a Chinese Bio-Warfare agent Xiangguo Qiu. Dr. Xiangguo Qiu is married to another Chinese scientist Dr. Keding Cheng – the couple is responsible for infiltrating Canada’s NML with many Chinese agents posing as students from a range of Chinese scientific facilities directly tied to China’s Biological Warfare Program. Dr. Xiangguo Qiu made at least five trips to the Wuhan National Biosafety Laboratory located only 20 miles away from the Huanan Seafood Market which is the epicenter of the outbreak. The Canadian investigation is ongoing and questions remain whether previous shipments to China of other viruses or other essential preparations, took place from 2006 to 2018, one way or another. Frank Plummer Assassination Meanwhile, in a very strange turn of events, renowned scientist Frank Plummer who received Saudi SARS Coronavirus sample and was working on Coronavirus (HIV) vaccine in the Winnipeg based Canadian lab from where the virus was smuggled by Chinese Biowarfare agents has died in mysterious conditions in Nigeria. Scholars or Spies The Thousand Talents Plan or Thousand Talents Program was established in 2008 by the central government of China to recognize and recruit leading international experts in scientific research, innovation, and entrepreneurship – in other words to steal western technology. Weaponizing Biotech China’s national strategy of military-civil fusion has highlighted biology as a priority, and the People’s Liberation Army could be at the forefront of expanding and exploiting this knowledge. Chinese military’s interest in biology as an emerging domain of warfare is guided by strategists who talk about potential “genetic weapons” and the possibility of a “bloodless victory.”

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