On March 19th, US President Donald Trump said that he would get involved in oil price wars between Saudi Arabia and Russia “at the appropriate time.”
He further added that low gasoline prices were good for consumers even as they hurt the industry.
“We are trying to find some kind of a medium ground,” Trump told reporters at a White House press conference, Reuters reported.
“It’s very devastating to Russia because when you look at it, their whole economy is based on that and we have the lowest oil prices in decades so it’s very devastating to Russia. I would say it is very bad for Saudi Arabia but they’re in a fight, they’re in a fight on price, they’re in a fight on output. At the appropriate time I’ll get involved,” he said.
Russia’s economy is notably less dependent on oil exports than Saudia Arabia’s. Still Russia’s ruble is struggling.
The low oil prices are also devastating to US crude producers who have higher costs than those in Saudi Arabia and Russia and will likely spur consolidation of the industry.
According to the WSJ, the Trump administration is considering a diplomatic intervention in the Saudi-Russia oil price war to get the Saudis to cut oil production in an effort to stabilize markets.
The US also is weighing possible sanctions against Russia, although the details are not known. The new strategy reportedly follows lobbying from US oil companies asking the US to ramp up its diplomatic intervention in the oil markets.
On March 19th, the US Energy Department announced a solicitation to buy an initial 30 million barrels of oil for the Strategic Petroleum Reserve, part of a wider plan to fill the stockpile. However, the plan requires congressional approval.
After Trump made his statement that a possible intervention may happen, West Texas Intermediate made an epic recovery, with their largest one day climb in history.
The front-month April West Texas Intermediate crude rose $4.85, or 23.8%, to settle at $25.22 a barrel. That was the largest one-day, front-month percentage climb on record based on data going back to March 1983, according to Dow Jones Market Data.
Global benchmark May Brent crude rose $3.59, or 14.4%, to $28.47 a barrel. On March 18th, the contract fell $3.85, or over 13%, to finish at $24.88 a barrel on ICE Futures Europe, for its lowest settlement since May 8, 2003.
“A fair bit of short covering ensued after President Trump suggested he may tackle the oil crisis by brokering a deal between Moscow and Riyadh,” Stephen Innes, chief market strategist at AxiCorp, said in a note.
“Buying oil for the strategic reserve is a very constructive measure to help some U.S. producers avoid collapse amid the international price war,” said Per Magnus Nysveen, head of analysis at Oslo-based energy research firm Rystad Energy.
“Global oil demand is falling at an unprecedented pace…Saudi Arabia and Russia remain at the focal point of the price plunge, but the negative demand shock to the market may define the next several weeks,” said Helima Croft, global head of commodity strategy at RBC Capital Markets.
The Trump administration still, very apparently blames Russia for the oil war between Moscow and Riyadh, despite quite evidently the Kingdom beginning the spat that’s hurting both economies, alongside most other economies on the globe.
“Of course, it’s a low [oil] price, we would like to see it higher,” Kremlin spokesman Dmitry Peskov reportedly said on a conference call on March 17th, though he did not suggest a deal with the OPEC and its allies, led by Russia.
The Russian ruble has been steadily losing value, but recovered part of it at the opening on March 20th, as it was sitting at 81 rubles for $1 at the opening on March 19th.
Oil-producing nations failed to reach an agreement in early March to further curb oil production levels, and Saudis and Russians have been locked in a price war that has roiled energy and equity markets.
“Saudi Arabia appears determined to continue ongoing efforts to boost exports in a bid to pressure Russia and seize market share from higher cost producers,” said Fraser. “While US shale is expected to see slowdowns on a lagged basis, Canada may see more immediate losses as much of the country’s output faces both higher breakeven costs and lower product value relative to US production.”
This takes place at the time when coronavirus has locked most of Europe and many other countries, and the MSM even found time to blame the Kremlin for the entire hysteria around it.
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