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Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

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Originally appeared at ZeroHedge

With the commodity world still smarting from the Nov 2014 Saudi decision to (temporarily) break apart OPEC, and flood the market with oil in (failed) hopes of crushing US shale producers (who survived thanks to generous banks extending loan terms and even more generous buyers of junk bonds), which nonetheless resulted in a painful manufacturing recession as the price of Brent cratered as low as the mid-$20’s in late 2015/early 2016, on Saturday, Saudi Arabia launched its second scorched earth, or rather scorched oil campaign in 6 years. And this time there will be blood.

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

Following Friday’s shocking collapse of OPEC+, when Russia and Riyadh were unable to reach an agreement during the OPEC+ summit in Vienna which was seeking up to 1.5 million b/d in further oil production cuts, on Saturday Saudi Arabia kick started what Bloomberg called an all-out oil war, slashing official pricing for its crude and making the deepest cuts in at least 20 years on its main grades, in an effort to push as many barrels into the market as possible.

In the first major marketing decision since the meeting, the Saudi state producer Aramco, which successfully IPOed just before the price of oil cratered…

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

… launched unprecedented discounts and cut its April pricing for crude sales to Asia by $4-$6 a barrel and to the U.S. by a whopping $7 a barrel in attempts to steal market share from 3rd party sources, according to a copy of the announcement seen by Bloomberg. In the most significant move, Aramco widened the discount for its flagship Arab Light crude to refiners in north-west Europe by a hefty $8 a barrel, offering it at $10.25 a barrel under the Brent benchmark. In contrast, Urals, the Russian flagship crude blend, trades at a discount of about $2 a barrel under Brent. Traders said the Saudi move was a direct attack at the ability of Russian companies to sell crude in Europe.

Confirming the obvious, Iman Nasseri, managing director for the Middle East at oil consultant FGE said “Saudi Arabia is now really going into a full price war.”

The draconian cuts in monthly pricing by state prouder Saudi Aramco are the first and clearest indication of how the Saudis will respond to the break up of the alliance between OPEC and Russia, which as we noted earlier, dumped MbS on Friday in a stunning reversal within OPEC+. Talks in Vienna ended in dramatic failure on Friday as Saudi Arabia’s gamble to get Russia to agree to a prolonged and deeper cut failed to pay off.

And the second indication that the OPEC oil cartel is now effectively dead, came a few hours later when Bloomberg again reported that in addition to huge price cuts, Saudi Arabia was set to flood the market with a glut of oil to steal market share and capitalize on its just announced massive price cuts as the kingdom plans to increase oil output next month, going well above 10 million barrels a day.

In addition to slashing prices,  Saudi Arabia has privately told some market participants it could raise production much higher if needed, even going to a record of 12 million barrels a day, according to Bloomberg sources.

But before hitting a stunning 12mmb/d, Saudi production will first rise above 10 million barrels a day in April, from about 9.7 millions a day this month: “That’s the oil market equivalent of a declaration of war,” an unnamed commodities hedge fund manager said.

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

Meanwhile, as Bloomberg correctly notes, “with demand being ravaged by the coronavirus outbreak, opening the taps like that would throw oil market into chaos.”

According to preliminary estimates, with Brent trading at $45, a flood of Saudi supply as demand is in freefall, could send oil into the $20s if not teens, in a shock move lower as speculators puke on long positions in what Goldman calls periodically a “negative convexity” event.

Oil traders are looking to historical charts for an indication of how low prices could go. One potential target is $27.10 a barrel, reached in 2016 during the last price war. But some believe the market could go even lower.

What is the logic behind the Saudi decision?

According to one take, the shock-and-awe Saudi strategy could be an attempt to impose maximum pain in the quickest possible way to both Russia and other producers, most notably shale, in an effort to bring them back to the negotiating table, and then quickly reverse the production surge and start cutting output if a deal is achieved.

While that’s certainly possible, it has already been tried once – back in 2014/2015 – and the result was humiliation for Riyadh as not only shale came out stronger, but Russia had no problems absorbing the lower prices. Instead, the most likely outcome is that Russia will be able to withstand a shock price far longer than Saudi Arabia, which has budgeted for a Brent price of $58/b for 2020 (which would lead to a 6.4% budget deficit). A realized price which is roughly half that – should the Saudi strategy work out as planned – would lead to social unrest and government turmoil in Saudi Arabia, and may explain why earlier today Saudi crown prince MbS launched another crackdown on dozens of royals and army officers following the arrest of powerful princes, who may compete for the throne once the public mood in Saudi Arabia turns nasty in the coming weeks.

Incidentally, those wondering what is the worst case scenario for oil prices, consider that Brent traded at an all time low of $9.55 a barrel in December 1998, during one of the rare price wars that Saudi Arabia has launched over the last 40 years… similar to just now.

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

Could the price drop even lower now? Yes: back then there was no coronavirus pandemic destroying global oil demand.

One final point: with 10Y Breakevens driven almost entirely by the price of oil…

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

… once Brent craters on Monday to the mid-$30s or lower, the accompanying implosion in 10Y yields could make the record plunge in yields seen on Friday a dress rehearsal for what could be the biggest VaR shock of all time. And since QE will only send yields even lower, perhaps it’s time for the Fed to add oil futures to stocks among the expanded securities it plans on purchasing as part of QE-5 to avert the next deflationary crisis which may have just started.

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Vitex

Hopefully this will cause the USA to piss off out of Syria since (for the time being) Syrian crude isn’t worth anything

Barba_Papa

By itself its not important at all. I suspect its all about denying the Syrian state this source of revenue and to block the Iranian land connection to Syria and Hezbollah.

Zionism = EVIL

That is simply not possible due to demography and topography. Iranians move across from Tehran to Beirut at will as General Ghaani just showed.

Barba_Papa

Via land only via Al Bukamal. With the US keeping a watchful and probably passing every bit of intel on along to Israeli intelligence so they can bomb it later.

ruca

The US is not occupying the oil wells because they want the revenue from them, they are occupying them because they want to deprive Syria of the revenue, so that they cannot rebuild.

Karen Bartlett

That’s what they say, but at the same time they’re selling it and pocketing the proceeds.

Karen Bartlett

(Or maybe the Houthis will do some more bombing of Saudi oil refineries.)

Vitex

Splendid idea. I think that’s in their game-plan?

Karen Bartlett

I’d be surprised if it isn’t!

Luke Hemmming

Awesome for us ordinary people. We have been paying $1.60 to 1.70 a litre in Australia for our E10 (thats 10% ethanol) and 2.00+ for the top premium stuff when our price cycle is at its peak. Our fuel price cycle generally lasts 2 weeks. Starts high then gets lower by a cent or 2 everyday until it reaches its low 2 weeks later. So the last cycle saw it peak at an average of 1.70/l for e10 two weeks ago. Today it was 116.9 cents per litre. This is lower than normal. Usually stops around 1.20. My car takes 70 litres from empty. So at peak price of 1.70 of e10 it costs me $120.00 to fill it from empty. That may last me just over a week if I only do work and school driving with a small trip into town on a weekend if I’m not too heavy on the accelerator (I have a V6 Commodore wagon) and using AC. If I got premium at 2.10/l it would cost me $147.00. So oil wars do wonders for my weekly petrol bill and I encourage this price war to continue indefinately.

JIMI JAMES

It’s ironic once the control mechanism of the wests implodes in its own bullsht,the real powers like sauds and russians have the ability to keep things more tanginable for example back in 2015 after russia entered syria,i saw e10 as low as 89c per litre,whish is just another reason I prefer to see such power nations determine their sales as opposed to the unsolicited parasites whom are mearly in it only to keep their fake economies on life support,dare I say the beggining of the end for the petrodolla? It’s been a long time coming I can sure live with that as I know most of us can.

For the record Russia says it can comfortably rely on 40-50 per barrels,the west says saudies need atleast 70-75 per barrel to sustain but for what,some us hegemony imperial policy deals?
Just saying:

sam_koll

You will be lucky to see a 5% drop at the bowser when price of crude drops 50%

Zionism = EVIL

As long as the Jew Bilderberg 7 Sisters control the refining and global spot prices. A barrel of OIL has roughly 159 liters with a refining cost of around 4-5 cents so go figure!

sam_koll

factor-in the Australian Govt excise tax on petroleum products (0.423cents/liter) +10% GST. that stays constant regardless of basic price of Crude. I guess there are so many deserving military adventures that still need to be paid for after 9/11/2001

Jimmy Jim

GAS KIKES !

Zionism = EVIL

Yes, the taxes are biggest rip off in both Canada and Australia. In Vancouver there is also an environmental levy.

JIMI JAMES

ouch!

Concrete Mike

Its even more on diesel dude.
I hope we can have low fuel prices this summer, especially when we made our bids at 1.60$/L.

Zionism = EVIL

No more Holden in Oz mate, sell the Commodore as parts will be hard to get.

Luke Hemmming

IKR. sad day for Australia when that was announced.

roland

Don’t worry about that commodores always break down so there will be plenty of spare parts at the wreckers

Karen Bartlett

Man, that’s terrible. It’s sold by the gallon in the US. Right now in my part of the country it is selling at about $2.14 per gallon. My brother, ex-military, says that we need the ME wars to keep our gas prices down. :(

Luke Hemmming

So what I’m saying is I love this type of war.

JIMI JAMES

I like it because it exposes all the fake,phoney and false (we united snakes are the #1 oil exporters of the whole wide world) So much for wall streets:
Let me guess by dolla transacted,not factual volumes exported.nice try lamestream wall street:

PZIVJ

Sounds like a brilliant plan by MBS to bankrupt Saudi Arabia.
I say, off with his head :)

Free man

In fact, it’s a smart move.
2020 will be a difficult year for the entire world. He is the first to improve his position vis-à-vis competitors. The main casualty will be Iran.

Zionism = EVIL

Idiot, Iran has the most diversified economy in the region that has withstood 41 years of the worst Jew sanctions and during the Iran-Iraq war lived with $8 a barrel oil. You ignorant morons are illiterate and a hoot. Just one dimensional Iranophobia without even knowing the basics. Today, Iran is in much stronger position with almost no debt and very healthy Forex reserves of $134 BILLION and over 80% of Iranian revenues are not related to energy sector. How do you morons think that Iran has survived and thrived and supported Syria and Hezbollah? among others. You are total moron seriously :)

Free man

“How do you morons think that Iran has survived and thrived….” – So you think Iran is thriving.
Undoubtedly the supporters of the mullahs regime are “geniuses”. Go lick “holy” places in the city of Qom, this will ensure you good health.
LOL.

Jimmy Jim

BURN KIKES!

Free man

So get out of Mama’s basement and try.

Jimmy Jim

BURN KIKE UGLY MAMMA TOO MAZEL TOV!

roland

Iran is almost 100 per cent self sufficient in food supply i doubt isreal could make such a claim

Free man

I wish the Iranian people to have an economy like the Israeli one.
In fact, before 1979, they had a much stronger economy than the Israeli at the time, but the mullahs destroyed it.

JIMI JAMES

Better forex reserves than usas!

Zionism = EVIL

Yes and no debt at all, the gold reserves are even bigger. Iran is a very rich country with smart people and the Jewel of the region and that is why the Americunts and Jews have been after it. Too late now as it is too strong and a turn key nuclear power.

JIMI JAMES

They used to be friends with israel,no?

Zionism = EVIL

Yes, under Shah superficially, but even he turned against them in 1975 if you look at his last interview.

roland

Countries that have no debt seem to get blown up Libya springs to mind

Xoli Xoli

Dont be ignorant USA, Britain,France and Israel instigated Iran Iraq war.When their realized that there are no poor people in this particular countries.The biggest fear actually were the speed on which this Middle East economies were growing.It actually put Israel and Saudi Arabia in uncertainty.It is 5ben that USA, Britain,France,Germany ,Israel and war beneficiary puppets start regime change nonse to enrichment self through stealing oil,gas, gold and raw material and product’s.

Zionism = EVIL

The moron is Jew hasbarat and posts bullshit on every site that has a story on Iran or Palestine.

Free man

How did you manage to understand this with your limited mental abilities?
Crazy Zio Psycho thinks Iran is thriving. LOL.

Free man

How does what you wrote relate to what I wrote?
The Iranian economy is in serious crisis. Lowering oil prices will hurt it even more. Isn’t that right?
Isn’t it true that the Saudis have lowered their oil prices in the past to hurt Iran?

Jimmy Jim

BURN KIKES & DYKES!

SnowCatzor

And yet I bet the price the consumer pays will barely move, as my shitty government just uses oil price drops as an excuse to raise taxes again. All because of ‘muh climate change’ of course…

JIMI JAMES

Not always,but I get your drift,how many times it were dropped big time yet the bowser the same,
It would be nice to see more transparency in lieu to pricing,generally the old time excuse is but we paid much more for it than the present rate suggests,hopefully the exuses will end and them extra significant bucks in each and every familys throughout is factual stimulus with less debts.

BlueHeadLizard

In Europe when oil prices go up petrol price at the pump goes up immediately. When oil prices go down it takes weeks for pump prices to come down.

Free man

This is just one of the corona’s effects.
If the virus is not contained soon, the world is heading for a recession that we haven’t seen in a long time.

JIMI JAMES

Very limited,the media can try to manipulate the price of a toilet paper roll at 70-500 bucks,
but that won’t affect the real real power brokers,whoms reliance of sales is more important!
Maybe the end of the toxic petrodolla,back to gold standards? It’s known whos implodes loudest,
For what it’s work care for your cash/gold/etc,be very weary of the banks unless serving debts!

Zionism = EVIL

MBS is an idiot who has fucked Saudi Arabia in every which way and even the “royal” family of pimps is falling apart and more and more of them including the dead old geezer Salman’s real brother Ahmed is locked up and being tortured. MBS is the ultimate coward and being propped up by his Jew masters and boyfriend Kushner. Oil is headed towards $25 and the Saudi economy is totally bankrupt as the war in Yemen is using up all the assets and the lazy illiterate Bedouins still have to live on $110 billion annual subsidies. Saudi cowards have lost over $20 billion in weapons alone in their defeats in Yemen and the cost of the war is now more than $5 billion a month as foreign assets and reserves dwindle. The Americunts, Jews and European scammers have bankrupted the morons.

comment image

Assad must stay

hopefully the government collapses soon

Jimmy Jim

BURN MBS & KIKES SAME SHIT!

JIMI JAMES

Maybe Israel ought to take over saud,save a whole lotta headaches elsewhere in me,no?
You think it.

Assad must stay

i would rather them fight with each other and weaken each other lol

Zionism = EVIL

The Zionists are like midas touch in reverse, anything they touch turns into shit. Even the Labor Aussie FM Bob Carr pointed put the damage they are doing to Australia and the west in general.

roland

When did Bob Carr say that i think he’s been retired for years cause i don’t remember anyone being brave enough to criticize isreal publicly in this country for a long time

Zionism = EVIL

In the over 90 years of the British and Jew created al-Saud Wahhabi rule,this is the worst internal challenge the pimps have faced since the CIA killed Feisal in 1975 as he was becoming a champion of Palestine. MBS is a moron totally controlled by Jews and the faggot Kushner, however, the defeat in Yemen and the quagmire is getting to the Wahhabi establishment who are alarmed at Saudi society unraveling and facing hard economic times. The real situation inside the police state is far worse and there is good chance of a civil war, but the Americunt occupation forces are keeping the murderous coward MBS in power and there is growing anti-Americuntism.

Assad must stay

it is the ghost of saddam hussein getting revenge on the saudis for hosting all the US troops in the desert storm wars lol

good american

I’ve always thought that Saudi Arabia was a pig being grown for slaughter. If Saudi lands are a part of Greater Israel, how will Israel destroy it’s ‘ally’? it looks like the dumb mbs is doing all their dirty work himself, and better than maybe they imagined.

Jimmy Jim

BURN KIKES>NOT FOSSIL FUEL!

JIMI JAMES

Can’t stop industry,manufacturing,jobs,transportations,things will be done better than ever,
as for kikes,they had their rewards they don’t like it,they can always rely on global warming:
Worth noting that demand is lower now more than before,that can only be a good thing indeed!

Xoli Xoli

USANATO inaction and avoid helping Erdogan have severely shattered both Erdogan and Salman dreams.Mow both Saudis and Israel have turn against USA,FRANCE,BRITAIN and Germany. Israel has refuses to give USA iodome short range missiles code.Soon all flights from USA is going to be block by Satanyahu under the excuse of coronavirus.Saudi Arabia economy is going to collapse.It will affect all puppets. EU and USA economy is going to collapsed completely. Israel will attack Syria and Iran hope it will survive and failed completely only Damascuswill be destroyed.Erdogan will attack Syria and get destroyed. Erdogan will be removed forcefully by own people.Israel lobby secret agency of Pompeo will remove or kill Trump.

Zionism = EVIL

Why do you think ErDOG went to Moscow to lick Putin’s arse. The Turkey military is very unhappy with rising casualties.

Xoli Xoli

True no doubt.

JIMI JAMES

Pompeo and others are marked,syria has turkeys measure,iran will recover once their deepstate masonics are put out of buisness for good and israel will have no choice but to get on with real trades and ecological advancments as opposed to this vile evil plot to take on what they shan’t!

roland

I don’t think trump will be killed he is not worth the effort anyway once he gets reelected he will be free to act on Iran on behalf of isreal

You can call me Al

This will hurt them in a way that is beyond belief + anger the Yanks as well.

Zionism = EVIL

To be honest, the Saudi scum regardless will be back to the camel age as we have passed peak oil and there is massive investment in alternate fuels and hybrid and electric cars. They will have to drink the oil in about 40 years if they are still there.

JIMI JAMES

Transportations,fuel efficient powerplants,atomic,recyclables,agriculture,sun,wind,natural gas,hydrogen/hyrid,electric/hyrbrid,kinetics yeah agreed!

Jake321

LOL…if we were passed peak oil it would help the Saudi’s, not hurt them since they have so much of what remains. And note all that sand and sun in Saudi Arabia, just what is needed for PV’s.

Xoli Xoli

USA,France,Britain and Germany will turn against Israel and force it until their will regrets why their killed Jesus Christ.

JIMI JAMES

I wont mind if you don’t!

Jake321

Sure, in your delusional wet dream. Anyway, the Romans killed Jesus and the proof is that he is punishing the Italians today with Coronavirus. Now drink your chocolate milk, kid, which you believe comes from brown cows.

Dick Von Dast'Ard

Houthi’s can do something about that… Anytime they want.

Kananda

This article is bullshit. Just Russia was not willing to decrease the oil production when saudis pleased. Saudi Arabia before meeting already decreased the daily production by 1,5 millio barrels. So, Russia tries to destroy OPEC:

Jake321

Russians are great at self-distructive behavior. Kind of like their Vodka binging.

Jake321

About half of Russia’s government budget comes from oil and gas.and that brilliant businessman, Putz Putin, makes deals with China and others to sell Russian gas at a price tied to the price of oil. The collapse of oil prices will sure put a needed crimp in the Putz’s Greater Russia Follies. Oh, some two-thirds of Russia’s foreign trade is oil and gas and a major part of the Russian economy. The thankfully dead Russian Soviet Empire awaits some company from the Putz’s RF in the dustbin of history. And then there are the already collapsing Islamist Iran and want-to-be Socialist Venezuela who rely on selling oil. Thank you Saudi Arabia.

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