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Old 21st April 2020, 13:44   #16
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Looks like the Russians are low cost producers too - so they will survive (since Brent is at $26).
Thanks for the informative figure, it is always not about production cost but also transportation cost and oil quality. The thing is, Russia has got capacity to pump as much as the other major producers. A country that believes in Socialism, doesn't recognize the importance of a UNION and acts selfish. OPEC went all out, why only we suffer, let every one suffer in a fair market.
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Old 21st April 2020, 16:42   #17
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

There are many questions that should be everyone’s minds right now:

1) Will oil prices ever recover to pre-pandemic levels or has the oil bubble finally burst?

2) How does it affect economies such as India and China which are dependent on oil? Generally these countries do better with low oil prices but do very low oil prices come with risks for oil importers too?

3) Gulf countries like Saudi Arabia and Kuwait get a chunk of their revenues from oil. But smart cat pointed out that the gulf has very low production costs. So, can these countries weather this storm? (Even UAE gets a lot of it’s revenues from oil since Abu Dhabi which covers most of the country’s revenues is a major oil exporter).

4) Being the only major natural gas producer in the gulf, will Qatar finally get a upper hand in its now hostile neighbourhood?

5) The economies of Russia, Azerbaijan, Brazil, Venezuela and Ecuador will surely be affected. The drop in oil prices in 2016 already strained their finances with Venezuela becoming a failed state. So, what will it mean for global politics? Will Russia finally leave global politics?

6) Many major oil based economies (Norway, UAE, Saudi, Kuwait etc) have invested hundreds of billions (more than 1 trillion dollars in the case of UAE and Norway) worldwide through their sovereign wealth funds. So will this crash in oil prices affect these investments?

I guess we can only speculate at this point, these are unprecedented times.
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Old 21st April 2020, 17:16   #18
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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1) Will oil prices ever recover to pre-pandemic levels or has the oil bubble finally burst?
- Depends on how quickly economic activities recover to pre-pandemic levels.
- Depends on what happens to small and medium shale oil companies in US. If they go bankrupt (they are already knee deep in debt) and are forced to shutdown, then oil price recovery will be faster because large supply has been taken out of the market.

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How does it affect economies such as India and China which are dependent on oil? Generally these countries do better with low oil prices but do very low oil prices come with risks for oil importers too?
Popular perception that low oil prices is good for India is wrong. India sees low growth when oil prices are low. India sees scorching growth when oil prices are high. That's because crude oil price is a leading indicator of economic health of the world. And low oil price means economic activity is falling.

Sure, India might have better balance of trade (because import fall will be greater than exports fall) but it will be accompanied by flight of capital. It will be accompanied by low FDI investments and low FII investments. Rupee will lose value compared to major currencies like USD/EUR/GBP/JPY etc.

Quote:
Gulf countries like Saudi Arabia and Kuwait get a chunk of their revenues from oil. But smart cat pointed out that the gulf has very low production costs. So, can these countries weather this storm?
You can get an idea by looking at how gulf nations performed during the 2009 Great Recession.

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Being the only major natural gas producer in the gulf, will Qatar finally get a upper hand in its now hostile neighbourhood?
Natural gas is used for power production, heating of homes (in cold countries) and as industrial fuel. Qatar will still be affected by this crisis, but not so much as pure oil producers.

Quote:
The economies of Russia, Azerbaijan, Brazil, Venezuela and Ecuador will surely be affected. The drop in oil prices in 2016 already strained their finances with Venezuela becoming a failed state. So, what will it mean for global politics? Will Russia finally leave global politics?
Commodity producers will see wild swings in GDP growth, like they did during 2009 Great Recession. All countries will probably "print" money to get out of this situation.

How all this will affect global politics and middle-eastern politics is speculation.

Quote:
Many major oil based economies (Norway, UAE, Saudi, Kuwait etc) have invested hundreds of billions (more than 1 trillion dollars in the case of UAE and Norway) worldwide through their sovereign wealth funds. So will this crash in oil prices affect these investments?
They are pulling out money from global stocks and bonds. Eg:

Norway’s wealth fund to liquidate assets due to Covid-19 impact
https://www.thehindubusinessline.com...le31226685.ece

Last edited by SmartCat : 21st April 2020 at 17:17.
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Old 21st April 2020, 17:58   #19
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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Rupee will lose value compared to major currencies like USD/EUR/GBP/JPY etc.
...
All countries will probably "print" money to get out of this situation.
Nice insight. Most likely they would print money in the short term and INR could deflate. Was thinking on the lines of what can be the best ways for preserving our bank balance. Buy commodities, gold bonds ? or turn it into some nondepriciable fixed assets.
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Old 21st April 2020, 20:14   #20
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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You can get an idea by looking at how gulf nations performed during the 2009 Great Recession.

Natural gas is used for power production, heating of homes (in cold countries) and as industrial fuel. Qatar will still be affected by this crisis, but not so much as pure oil producers.
....
How all this will affect global politics and middle-eastern politics is speculation.
The GCC countries would be alright; they can either reduce imports to try a balance or borrow.

The developing oil based economies like Iran, Iraq, Algeria etc will have a really tough time. If China moves into a self reliance route inwards, these countries have to move to a Chinese bloc for survival. If Shale collapses, then the OPEC+ could split into two factions.

That would also support a move to regionalism of commodity+oil supply in the Americas as well, where countries like Mexico could survive on a regional cooperation model serving US.

This pure guess is also looking like the best case scenario for all regions in my opinion, where there may be some hostile politics around and some economic issues here and there, but in general there are no wars or catastrophes.
China can move to a consumption model slowly, with Belt and road initiative to run a bloc of commodity+oil producers allies and US running its own commodity+oil producers allies.


Who would have thought a year ago that countries like Argentina whose major exports are agriculture related (soy, corn etc) will suffer least shock of a global crisis !
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Old 21st April 2020, 20:40   #21
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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Most likely they would print money in the short term and INR could deflate. Was thinking on the lines of what can be the best ways for preserving our bank balance. Buy commodities, gold bonds ? or turn it into some nondepriciable fixed assets.
Money printing is not too bad in this context, because it is the only way to ensure future GDP growth. Of course, it depends on how Govt decides to spend its way out of trouble. And if there is high inflation, RBI will crank up the rates and your bank deposits interest will go up to cover for inflation.

Gold is a hedge against inflation and sovereign gold bonds are even better because you get 2.5% annual interest. However, nobody on earth knows what is the fair value of Gold (because it has both investing demand and commodity demand). So investing in Gold has a speculative element in it.

FMCG stocks too generate good profits in high inflation environment, because they can pass on the costs to the consumer without significantly affecting demand. Anyway, too early to talk about all this. Let's see how the situation unfolds.


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Who would have thought a year ago that countries like Argentina whose major exports are agriculture related (soy, corn etc) will suffer least shock of a global crisis !
Argentina handles economic crisis like a boss. First, they ask the foreign bond holders to take a hike. And then, they will start all over again from scratch - high inflation be damned.

Bondholders reject Argentina’s debt offer
Creditors denounce government restructuring plan as unacceptable
https://www.ft.com/content/558582bb-...2-f4b0d2fb05be

Last edited by SmartCat : 21st April 2020 at 20:42.
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Old 21st April 2020, 21:23   #22
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

To highlight one aspect of these crazy prices, extreme crash is due to "technical" reasons. No rationale exists to sell "actual" Oil at negative prices.

These are "Future" prices. Only prices for delivery in next few days are impacted. Say you are an Oil trader (and you hold this contract on your books), you have two options :

1. Buy the Oil, scramble to find storage in terms of ships + Pay cost for storage
2. Sell the contract at any price possible

Trader will do whatever is cheaper. Since contract is expiring tomorrow, hence the urgency to choose an option.

Contracts for July are nowhere near these prices.

"The July contract was roughly 11% lower at $26.18 per barrel."

https://www.cnbc.com/2020/04/20/oil-...ts-demand.html
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Old 22nd April 2020, 08:58   #23
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

A news report in The Hindu today which throws light into few queries raised here.

https://www.thehindu.com/business/ex...le31394425.ece

Quote:
Explained | Why are oil futures in negative terrain?

Raghuvir Srinivasan21 APRIL 2020 12:42 IST , UPDATED:*21 APRIL 2020 16:28 IST


Negative prices mean sellers have to pay buyers to get rid of their crude, an unprecedented situation even in the volatile oil market.

Story so far:*Prices of West Texas Intermediate (WTI), the American benchmark for crude oil,*fell to less than zero*in Monday’s trade. The price of a barrel of WTI fell to minus, yes, that’s right, minus $37.63 a barrel. What this means is that sellers have to pay buyers to get rid of their crude!*This is unprecedented in the oil market, even accounting for its notoriety for being volatile.
Why did prices fall like this?
We need to understand a bit of oil market and trading dynamics here. WTI oil is traded as futures contracts in the NYMEX (New York Mercantile Exchange) where traders buy and sell monthly futures such as, for instance, May futures, June futures and so on. The sellers of such futures will have to deliver a barrel of crude oil at the contracted price in the contracted month just as buyers will have to take delivery at the contracted date.

As with all trading in commodities, there’s a huge speculative participation in oil futures trading too. So speculators buy and sell contracts with no intention of taking delivery (in the case of buyers) or offering delivery (in the case of sellers) of the physical oil, on the contracted date. These speculators have to unwind their “positions” on the contract expiry date. If they fail to do so, they will have to take physical delivery of the crude oil on the contracted date.
What happened on Monday was that speculators who had taken large bets on May futures began to unwind their “positions”. This was because the futures contracts are set to expire today, Tuesday. Those not intending to take physical delivery have to square off their contracts before the expiry date. So, speculators who did not want to take delivery in May proceeded to unwind their “positions,” leading to the massive fall in prices.
It could be that these were financial speculators who never take physical delivery and hence closed their contracts. Or, these could also be delivery-based traders backing out as the bottom has fallen off demand for oil. In reality, it would be a combination of both categories of traders. The bottomline, though ,is that prices*fell as demand for oil is falling*and the world, especially America, is running out of storage space.
May WTI futures prices went negative but June futures prices are still at $20.43 a barrel. Why?
This could be due to two reasons. Traders expect demand to recover by June as lockdowns are lifted across the world and economic activity resumes. Second, traders also expect that storage space may be created as existing inventory is drawn down. America is also talking of adding to their strategic storage by taking advantage of the low prices. This could create demand for oil. Finally, contract expiry for June contracts is still a few weeks away, giving speculators that much more time to speculate.
Market reports talk about contango trades in the oil market. What do they mean?
Simply put, contango kicks in when prices of a commodity in the futures market are considerably higher for deliveries many months later, compared to prices for immediate delivery. For instance, while May oil futures are negative and June is at $20.43 a barrel, November futures for the same grade of oil ended at a hefty $31.66 a barrel on Monday. Contango trades happen when traders anticipate a surge or rise in demand and hence value the commodity higher for the future.
So, why can’t traders buy cheap oil now and store them for release in future when demand and prices rise?
That’s exactly what traders are now doing. Such a practice became famous during Iraq’s invasion of Kuwait in 1990 when a trader took massive positions at cheap prices ahead of the invasion and sold them when prices rose after the invasion. Oil was stored in tankers floating on the sea and unloaded at considerably higher prices.
Traders are doing the same now. Year-long hiring contracts for VLCC (very large crude carriers) that can store up to 2 million barrels of oil are soaring through the roof. According to a report in the*Wall Street Journal, VLCC hiring charges for year-long contracts are now at $72,500 a day, compared to $30,500 a day a year ago.
This shows rising demand for such floating storage to take advantage of low prices now. These tankers are moored off the South African coast, which is equidistant to the American and Asian markets. But the problem is that such floating storage is also fast running out of capacity; land storage in America is already overflowing. This would explain why oil prices are falling without support. According to some estimates, over 140 million barrels of oil are now floating in the high seas. The world consumed, at its heyday, about 90 million barrels of oil a day. This should now be considerably lower.
The prices of Brent grade are still at $25.70 a barrel for May futures. What’s the reason for the difference?
Brent oil has traditionally quoted higher than WTI, with the gulf being about $6-7 a barrel between the two. Brent is a superior grade produced in the North Sea off the British coast and is the accepted benchmark for this part of the world. The market that it serves is considerably larger than that of the United States and demand is, therefore, higher. Transporting oil from the U.S. to Asia is not economical, thus limiting the scope for the WTI grade. Refineries in Europe are configured for Brent, rather than WTI. Prices of Brent are, therefore, always higher than those of WTI.
How is India benefiting from this price crash?
In two ways. First, the oil import bill will fall sharply this fiscal year, giving tremendous relief to the government on the external account front. With merchandise exports from India badly hit due to the lockdown in the West, foreign exchange earnings are under pressure. With oil prices falling and foreign exchange outgo reducing, the pressure on the current account balance is off. In fact, we may be looking at a positive balance in the current account if global economic recovery is quick and our exports recover.
Second, India is quietly*building up its strategic reserves, taking advantage of the cheap prices. India has a capacity to hold over 39 million barrels of oil at its strategic reserves in Vishakhapatnam, Mangalore and Padur, near Udupi. These are underground salt caverns converted and built to store crude oil. The strategic storage capacity is now being increased even as the existing caverns are being filled.

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Old 22nd April 2020, 11:51   #24
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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Gold is a hedge against inflation and sovereign gold bonds are even better because you get 2.5% annual interest. However, nobody on earth knows what is the fair value of Gold (because it has both investing demand and commodity demand). So investing in Gold has a speculative element in it.
I agree with your first point that Gold is a hedge against inflation. However, Gold has always been money. It's commodity demand is still limited to only jewelry and ornaments unlike Silver which is an industrial metal.

Gold in the last 50 years has had two Bull runs. Prior to 1971, the money printing was backed by Gold. But, when Nixon moved away from Gold standard, Gold became a commodity.

1st Bull Run: 1971 - 1980: The price of Gold went up from $32 an ounce to $900.

2nd Bull Run: 1999 - 2011 : The price of Gold went up from $250 to $1950.

The price came down to $1050 in 2015.

A lot of us who got married in 2000s were astounded by the meteoric rise in the value of Gold.

What is a fair price of Gold ?
In order to get it, it is vital that you must bifurcate between Physical Gold vs Digital Gold which is Comex/ETF. The latter is based on Fractional Reserve System. Thus, the reserves is only 10% Physical Gold and rest is paper Gold. If you ask for redemption, they may not be able to honour your request. Thus, they will send you a cheque for price of Gold on that day but you won't get your physical gold.

As far as Physical gold, there are approximately 30,000 tons. The value is manipulated by London Bullion Market Association (LBMA) to keep the financial markets and oligarchy rich.

If one divides the supply of Dollar with the Physical Gold, one can reach a figure of $20,000 and increasing exponentially.

One must understand that Gold has intrinsic value. Gold does not loose value. If you had 1 ounce of Gold in 1971 and you put it under your mattress and went to sleep for 50 years. It will still remain 1 ounce of Gold. After you wake up, you could purchase anything for the same 1 ounce of Gold subject to we are in a gold based monetary system. But, if you slept with $10 in 1971 which could buy you a second hand car, after 50 years $10 will only buy you a box of chocolates. It is USD that is devalued which leads to appreciation of Gold. We are in a massive rally for Gold because all this money printing will enter into an asset class. Stock/Real Estate are well past their prime. Post the pandemic with myriad bankruptcies, Gold will be considered as the absolute safe haven.

Silver may also see a rise. But, Silver is not just money, but an industrial metal as well. We know that in a depression Industrial demand plunges, Thus, after gold surpasses a certain threshold , Silver might start to pick up.

As the famous maxim goes, "Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.”

For the uninitiated, we live in a debt based monetary system.
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Old 22nd April 2020, 12:23   #25
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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Nice insight. Most likely they would print money in the short term and INR could deflate.
or turn it into some nondepriciable fixed assets.
I have not seen any physical asset that will never depreciate. All assets will depreciate under different environments. Even real estate and gold will behave like that.
When Indian consumer and Chinese bank lose appetite for gold, prices will tumble. Which is a very likely event as purchasing power of Indian consumer gets impacted and central banks all over world will print money to boost consumer spend, surely not to buy gold which is counter productive in this scenario.

Capital flying out is always a big concern, lets see what happens this time. I have a suspicion that smart money will stay and come flying into India.
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Old 22nd April 2020, 12:30   #26
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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If one divides the supply of Dollar with the Physical Gold, one can reach a figure of $20,000 and increasing exponentially.
What is the logic behind dividing dollar supply by physical gold quantity? There are literally hundreds of currencies and many metal commodities (Eg: copper and silver). Copper and silver have an intrinsic value too, and can be used for transactions or as store of value. Also, "value" can be stored in stocks or real estate for a long period of time, not just in gold.

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If you had 1 ounce of Gold in 1971 and you put it under your mattress and went to sleep for 50 years. It will still remain 1 ounce of Gold. After you wake up, you could purchase anything for the same 1 ounce of Gold subject to we are in a gold based monetary system. But, if you slept with $10 in 1971 which could buy you a second hand car, after 50 years $10 will only buy you a box of chocolates.
True. But paper currencies are meant only for transactions and at best, as temporary store of value. If you want your currency (INR or USD) to beat inflation, you are supposed to deposit it in a bank and earn interest - not keep it under your mattress. For eg: $10 in US treasury bonds in 1971 would now be worth around $460.

But yeah, in a zero interest rate environment, the above logic goes for a six. When interest rates stay at zero, Gold is an attractive investment option for the long term for Americans, Japanese and Eurozone. But so does stocks (dividends + capital appreciation) and real estate (rentals + capital appreciation)

Last edited by SmartCat : 22nd April 2020 at 12:43.
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Old 22nd April 2020, 12:52   #27
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

Historically, if we look at very long term 30-50 years, gold has followed world GDP. But it has been relatively volatile in the short term.

I'm nay interested in keeping gold under my pillow for 30 years, all I need is how can I preserve the value of my savings during sudden inflation. If we look at the 2008 financial crisis, Gold proved to be a safe bet.

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Old 22nd April 2020, 13:25   #28
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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I'm nay interested in keeping gold under my pillow for 30 years, all I need is how can I preserve the value of my savings during sudden inflation. If we look at the 2008 financial crisis, Gold proved to be a safe bet.
Gold INR chart looks even more impressive:

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But as I mentioned in the mutual fund thread, Govt bond fund (also called g-sec or gilt fund) too works quite well in a financial crisis.
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Old 22nd April 2020, 13:39   #29
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Hi Smartcat,
The oil storage reservoirs would not have filled up overnight. And it is everyone's knowledge that the demand is going to be bleak for sometime. So, why they did not stop production much in advance? Any underlying reasons?
With all due respect to the other explanations, this is not as simple as storage.

1) Three way battle between Russia, USA (Shale) and Saudi Arabia (KSA) over production levels - All these three countries have been playing a game of Russian Roulette with each other for the past year almost. The break even price of oil that will match production, transportation and gross taxes for each country differs,

Russia - $ 19.5 / barrel, US Shale - $23.5, KSA - $8

However this is further compounded by the fact that US does not depend on oil to fund it's budget but KSA and Russia are heavily dependent. KSA needs oil at $ 80 / brl, Russia at $ 25, while US private producers need prices at $40 / brl to stay solvent and pay off the massive debts they took to build this shale oil extraction infrastructure.

Now keep this aside for a bit

2) Cartels and price rigging - KSA with some other countries formed something called the OPEC, till the early 2000 AD period, this comprised all leading oil producing companies with the Soviet union and later Russia being the sole exception. Whenever prices dropped on account of market conditions, OPEC would simply cut supply and push prices up. When it wanted prices to drop (like the USA wanted KSA to do in the mid 80's), it ramped up production. So OPEC (KSA) could create both the oil shortage of the 70's and the oil glut of the 80's that wrecked the Soviet economy and was one of the key reasons for its fall.

However the rise of US shale meant that OPEC lacked the ability to influence what is now the largest oil producer in the world with the second or third depending on the year, Russia both out of it. So OPEC + was formed along with Russia.

Starting Nov end oil demand was slowing but production was not, prices were dropping, so OPEC+ met in Vienna in March to agree on production cuts. Russia refused and ramped up production.

Russia did this because it wants to price the US shale producers into bankruptcy and out of business as they need oil at $40 to sustain and aren't given state support like in Russia or KSA. This however angered the Saudis who started offering deep discounts to their European and key Asian buyers including India. This kept oil prices historically low in the first quarter of 2020.

With Covid though the already weak demand collapsed but none of the producers wanted to be the first to blink and cut back on production.

Now link this to point 1, USA wants Russia to be destabilised and for that it needs oil at less than $30 / brl, Russia wants to bankrupt US shale companies and thus are willing to eat losses the short run as they know that the heavily indebted private sector companies will die quickly at low oil prices and finally KSA wants the highest possible oil prices ($80) as otherwise it runs massive deficits, but has massive production capacity and wants to force both Russia and US companies to the negotiation table.

Russia seems fine winning so far. The largest shale company in the USA, Occidental Petrol corp, is near bankruptcy and is looking to sell a million acres of land (largest land transaction in USA after it purchased Alaska from Russia), just 15 days ago another large company, Whitting Petrol filed for bankruptcy, so it appears as though if Russia continues to sustain high production and low prices US Shale is in deep trouble.


This is how it was till a week ago, when point 3 hit

3) Oil Futures Market - in a simplistic explanation, this is when you (trader) can contract to buy oil at a predetermined date at a predetermined price. Think of it like gambling? Hedging? Whatever you want to call it. Assume oil is at $50 a barrel today, your analysis tells you that oil prices are going to rise by June, so you will agree to buy 100 barrels of oil on June 1at at $ 45. Now if prices rise? You win. If prices drop to say $ 35.... Then you lose. It is more complex than this but as a simplistic explanation this should suffice. May futures contracts For WTI expired Tuesday, and on Monday when markets opened, traders dumped their contracts at a loss. Why?

Another simplistic explanation follows,

When in the previous example you contracted to buy 100 barrels at $45, and prices dropped to $20 also, while you lose $2500, you had the ability to to store the oil, wait for prices to hit $50 and then sell. Now though with world demand being 60% of what it was even 4 months ago and all strategic storages filling up (US is at 70% capacity for instance on average), traders had another problem, you can buy the oil, but where will you store them? And so they started dumping their contracts in market (so you could sell your June futures contracts at say $10, a massive $35/ brl loss but imagine you purchased them, you will now have huge storage costs + when will you be able to sell them again?), But no one expected the blood bath that happened and we had negative WTI prices. Brent though dropped only by 3-4%.

What's the future you ask? Finally OPEC+ has agreed on production cuts from May 1, bjt worryingly for Putin, Trump is pushing for a stimulus / bailout package for Shale, if this happens and the deep pockets of the US come into play, then even at $5/brl, Putin might not be able to bankrupt US shale producers, this means he will look at cutting his loses and thereby further reducing production along with KSA to stabilise prices.

My half baked prediction? Oil will stabilise at around $30 by May and stay there.
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Old 22nd April 2020, 13:39   #30
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

So, will the recent collapse in Oil prices lead to termination of Petrodollar?

The Petrodollar created artificial market for U.S. dollars that would not have otherwise naturally existed. This demand is artificial, since the U.S. dollar is just a middleman in a transaction that has nothing to do with a U.S. product or service.

Benefits of Petrodollar led to increased purchasing power and a deeper, more liquid market for the U.S. $ and Treasuries.

Also, the unique privilege where the U.S don't have to use foreign currency but rather using its own currency, which it can print, to purchase its imports, including oil.

Now, U.S has the highest number of Covid-19 cases and deaths already, and they have taken an uncharacteristic back seat in global leadership during this crisis. U.S superpower status now stands exposed, with China stepping up to fill the void dealing with the outbreak in Europe and the Middle East. The unexpected oil market crash could be the final nail in the coffin of U.S dominance, which could led to the end of the petrodollar agreement between the US and Saudi Arabia.

Also, U.S shale market will bear the brunt of the oil war, with Russia, not Saudi, coming out on top geopolitically. Oil is cheaper to extract in Russia than in the U.S, and Moscow has less debt to worry about than the Saudis.

The Saudis threatened to ditch the dollar for oil deals last year, although the last two countries in the region to do so faced NATO-led wars as a result. Libya’s Muammar Gaddafi wanted to cease trading in U.S dollars and use a gold-backed dinar instead, while Iraq’s Saddam Hussein insisted on dumping the dollar and switched to Euros back in 2000. Saudi Arabia is thus playing a dangerous game and, unlike Russia, it has no nuclear deterrent of its own and has sub-contracted its defence entirely to America.
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