Sunday, March 08, 2020

Oil Wars or How's That Pipeline Comin'?

Russia and Saudi Arabia are duking it out and it has sent world oil prices plummeting.

The Saudis have been trying to close the taps on oil production in hope of ending the worldwide glut that has depressed prices. On Friday Russia, which is not an OPEC member, said it wouldn't play along.
The Saudi decision to cut prices by nearly 10 percent on Saturday was a dramatic move in retaliation for Russia’s refusal on Friday to join the Organization of the Petroleum Exporting Countries in a large production cut as the coronavirus continues to slow the global economy and, with it, demand for oil. 
The break in a three-year alliance between the Saudi-led oil cartel and Russia to support prices may be temporary. The moves over the weekend may well have been part of a negotiating chess game, and the Saudis and Russians can still reach a compromise. But if the collapse is lasting, oil executives say there is nothing to stop oil prices from tumbling to the lowest levels in at least five years.

“If a true price war ensues, there will be plenty of pain in the oil markets,” said Badr Jafar, president of Crescent Petroleum, a United Arab Emirates oil company. “Many will be bracing for the economic and geopolitical shocks of a low-price environment.”
Business Insider has reported that, as of the end of business today, world oil prices have dropped 31 per cent.
Oil futures tumbled 31% in a matter of seconds overnight on Sunday, their sharpest decline since the Gulf War in 1991. The losses are being fueled by sinking demand due to coronavirus concerns, which has in turn sparked a series of price cuts. 
Saudi Arabia slashed its prices by the most in at least 20 years over the weekend. A price-cut free-for-all has broken out globally following the collapse of an OPEC+ alliance last week.
Business Insider contends this is the biggest world oil price crash since the Gulf War of 1991.

Gee, this sounds like a great moment to be doubling down on expanding production of the high-cost/high-carbon/low value Athabasca bitumen, eh? 


Trailblazer said...

It's complicated..
Today on right wing radio ( there is no other) Jason Kenny was extolling the virtues of Alberta oil to a point that it's supply is more important than the air we breathe

The realities of life are lost on the argument of pro and con fossil fuels.
At one end we have the greedy bastards club who are quite content to accept the possibility of the world ending the day after they die.
At the other end we have 'Greenies" who think we can save the world with dry toilets and potters wheels.

Sadly those in the middle seem quite incapable making a decision more important than which credit card to pay to at the end of the month.

The greedy bastards club are going to increase the production of fossil fuels and possibly destroy marginal production, profits, from shale oils and tar sands.
It will be interesting to see if those marginal producers will be recipients of more tax and environmental concessions ?
All of this will occur whilst battery efficiency improves at rates from 1.6X to 3x.
Yes, we will require fossil fuels and for many years to come.
That said, other than long distance air travel, the day of fossil fuel travel is in deep decline.


The Disaffected Lib said...

We do seem to have achieved a societal measure of incompetence, TB. There's much sadness to it. We have really buggered everything up these past 40 years and now the inevitable reckoning draws near.

There was an item in The Guardian today that concerned letters written by Australian climate scientists describing the emotional toll this emergency has taken on them. They write of a mixture of anger, profound sadness, even guilt for what they perceive as their personal failure to effect desperately needed change.

Trailblazer said...



the salamander said...

.. TB's link is very useful reading for coherent Canadians.. but how many form their impressions or knowledge from such sources or the very similar Government of Canada link ? Or are fine with being 'informed' by the garbage from PostMedia?? The magazine web page is riddled with vague generalization, conflation of terminology but still useful, rather than hysterical garbage from Mainstream propaganda.

The Saudi Arabian rulers have spotted the 'Upside Excuse Of Down'. What an opportunity to crush 'outsider' oil producers & exporters and smash up natural gas producers - exporters at the same time ! Russia is always desperate for cash, foreign currency.. so there's a slapdown. USA and Canada ? In the same boat. The USA is skating on the techobubble of technology - horizontal hydraulic fracturing has made them net exporters.. and semi 'energy independant'. Canada is a mere shrimp in the Big Picture.. and exhausting itself trying to run with the big boys via subsidized tar sands and fracking. Same with natural gas - ie Methane. We actually resemble Venezuela in terms of energy resources. They too have staggering Bitumen deposits.. but but but...

As Canadians it might behoove us or as many as possible.. to comprehend that 96-98 % of 'our vast oil reserves' & the 3rd or 4th largest in the entire world.. are uh.. actually buried Bitumen in the Alberta Tar Sands and not 'oil'. Yes - Alberta Bitumen, High in Sulphur, highly acidic, expensive to extract and will lag far behind Benchmark Oil such as Brent or West Texas Intermediate forever. To hear Jason Kenney, Andrew Scheer, Erin O'Toole or MediaPost though, that Bitumen is 'Ethical Oil' best in the world and unfairly 'discounted' because there are not enough pipelines to somewhere, wherever, tidewater or maritime Nova Scotia.. currently its California bound mainly, but oh those rich overpopulated Asian nations are just clamouring for it !! As well as our non-competive priced Methane.. Oh really ? Why ??

rumleyfips said...

Amazing! when I went to bed last night things were quiet. When I got up this morning everything had changed. It's going to take a long tome to clean that fan.

Northern PoV said...

Putting aside environmental concerns, the boom-bust nature of fossil fuels should be enough to convince Canadians to stop paying for TMX.

"Last night, West Texas Intermediate was down to $27.69 US, and Western Canadian Select, our tarsands special, was trading at $14.43."

The Saudis and the Ruskies saw the the shale oil producers in the USA (the market 'disruptors') as their enemy. Price was their weapon. Even their latest 'squabble' has worked in their favour.

The shale-oil guys and the bitumen miners in Alberta have been reducing their break even point. (via automation and squeezing HR ... so-long to good job creation) The bitumen break-even is now around $40 I believe.

Now the new low is so far below their newly-achieved break even points, they must feel like the hapless coyote chasing the roadrunner.

Northern PoV said...

Another bit to add to the great post and comments here:

"“A Toothpick in a Tsunami”: US Big Oil Faces Bankruptcy as Prices Plunge 30% on Saudi Expansion"

Will Jr. continue to fight the world with borrowed money and/or our taxes?

Trailblazer said...

To borrow a comment from this mornings Financial Post.
Now we will see how is swimming naked!


The Disaffected Lib said...

It's too early to tell whether we're nearing the end of the Carbon Bubble that so many have foreseen. This might be it or at least the beginning of it.

Mark Carney warns it's not far off. The financial titans such as BlackRock want nothing to do with coal or bitumen.

The oilsandsmagazine article deliberately omits any mention of the environmental calamity associated with unrestrained consumption of fossil fuels. There will be no global economy surviving if we burn more than a fraction of already proven fossil energy reserves.

That should be a prominent factor but it's not. Why not? Because it reduces the argument for "pipelines to tidewater" to a dark farce. Their entire case depends on a fiction of a robust, secure world held back only by some mythical inability to gorge themselves on bitumen. That stands logic on its head.