Today we will talk about oil prices and all the movement that is happening around them. But before the main conversation, I have recently made it a habit to pre-fix the main fact. Because there are some alternatively gifted citizens who manage to directly contradict themselves in two adjacent sentences. For example, to declare: "The British and Americans control the world oil prices, but Russia does not influence them" - and at the same time: "Russia brought down oil prices." Shaped schizophrenia in a single head.
To prevent this from happening and so that “alternative versions” from no less alternative reality are born in the discussion, we fix the “constants”.
1. The decline in oil prices did not appear suddenly in early March, but began in early January (just around the Orthodox Christmas). Therefore, the need for negotiations within OPEC + did not arise out of the blue.
2. The decline in oil prices, which began in January, is only a consequence of a general slowdown in a significant part of the world economy. It is expressed in a decrease in industrial production in the US and a number of EU countries, as well as a drop in freight traffic.
3. Any market regulation on the oil market has its purely physical limitations. Consumers cannot reduce their oil purchases to zero, because that would mean a halt in the global economy. But producers cannot reduce production to zero either, because they also have their own purely technological limitations (those who wish can familiarize themselves with the specialized technical literature) - you cannot just “turn off the tap”.
At the same time, the US stock market is experiencing a severe liquidity crisis, apparently manifested in a shortage of funds for operations in the repo market (short-term interbank lending, if simplified). And the corresponding decisions of the Fed on a significant increase in the volume of dollar interventions in this market do not help - stock markets continue to fall anyway.
Which, as it were, clearly hints to us that the fall in oil prices is not the cause of the collapse of stock markets, but, on the contrary, is a consequence.
Now that we have figured out the causes and effects (which cheap propagandists really do not like to do), we can try to simulate how the situation will develop further and what the consequences will be.
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The first thesis. The Russian budget was drawn up on the basis of the average annual (I emphasize) oil prices in the region of $ 40 per barrel. That is, proceeding from a very negative scenario (when the budget was laid out, oil cost around $ 70 per barrel). Therefore, nothing terrible for the Russian economy will happen from the current drop in oil prices.
Again, significant gold and foreign exchange reserves (gold reserves) and large amounts of funds in the NWF are a powerful safety cushion that will make it possible to calmly survive even a fairly long crisis.
The second thesis. The Saudis, having thwarted the negotiations, announced that they would sell 12.3 million barrels of oil per day on the market. This figure (and this information was confirmed to me by people working in the oil industry) is more than their current production capacity. It means that:
a) they will have to compensate for the difference between sales and production by selling reserves;
b) they will not be able to maintain this strategy for a long enough time, because the reserves tend to run out.
I do not have data on the current filling of reserve capacities, but based on the data on the maximum volume of storage available in the public domain, I can assume that the period of such active dumping will last no longer than 4-6 months.
Again, it is not a fact that the market stagnating due to the general economic crisis will be able to take all the oil offered by the Saudis.
Third thesis. The timing for the collapse of oil prices has been chosen (or coincided) very well. In April, the majority of American shale companies should refinance (take new loans to pay off old ones and ensure current operating activities), and in the conditions of their capitalization collapse, I remind you that only on Monday they lost 30 to 50 percent. market value - it will be extremely difficult for them to do this (and at horse interest due to increased risks), if not impossible.
Some of the major oil companies with "traditional" operations have already announced they are scaling back their shale operations.
Now let's talk about the possible consequences of the current situation.
1. I am not sure that the current strategy of the Saudis will completely bury the shale industry in the United States. In industries where there is a dynamic equilibrium (a decrease in price leads to a decrease in the number of players, a decrease in the number of players leads to an increase in prices, an increase in prices leads to an increase in the number of players, which again causes a decrease in prices), it is probably worth avoiding such categorical judgments.
But there is no doubt that a significant blow will be dealt to this industry (in general, predominantly unprofitable). And yes, in the medium term, this will cause a redistribution of oil markets not in favor of the United States and, accordingly, a reverse price increase.
2. Separately, I would like to note the outstanding strategic thinking and phenomenal economic intuition of President Lukashenko. To buy Norwegian oil “for all the money” in spite of Russia “at the market price” of $ 65 right on the eve of its decline to 35 is such a skill that I would like to drink, but will not work.
3. For example, the Ministry of Energy of the Russian Federation forecasts the price of oil in the second half of the year in the range of 40–45, and at the beginning of next year - 45–50 dollars. I have not seen their calculations, so I cannot say for sure how realistic they are.
4. It should be borne in mind that Saudi Aramco has only recently listed its shares on the stock exchange. Many citizens of Saudi Arabia even took out loans to buy shares, but after the breakdown of the deal with OPEC +, their price fell sharply and continues to fall. So low oil prices are hitting the already fragile internal political situation in Saudi Arabia.
5. In the future, the situation on the oil market will depend more not on the whims of the Saudis, but on the general development of the crisis in the world economy.
The ultimate consequences of all this today are almost impossible to calculate (due to the large number of often unknown variables). But it can be stated for sure that we are present only at the beginning of the phase of shocks, and they will not end quickly.
PS Despite everything, it should be noted that today the Russian economy is the most resilient economy in the world. If you disagree, then try to name someone who would be more stable (and, of course, justify this).
Alexander Rogers