What Was Russia Thinking In Refusing To Cut Oil Production? (Forbes)
Forbes
EDITORS' PICK |Mar 8, 2020,06:00pm EST
What Was Russia Thinking In Refusing To Cut Oil Production?
By Robert Rapier
Last week OPEC conducted meetings with a coalition of partners that have worked together to limit oil production since 2016. It was widely reported that the group hoped to come to an agreement to reduce oil production by an additional 1.5 million barrels per day (BPD)...one of the key partners of the coalition, Russia, refused to participate in additional cuts. They had previously signaled their resistance to additional production cuts in February when OPEC floated the idea.
... the global coronavirus (COVID-19) outbreak has forced the issue. Now, instead of having to deal with the addition of another million BPD of U.S. shale every year, suddenly they had to cope with millions of barrels of excess oil on the market as demand collapsed in response to the coronavirus outbreak.
So, Russia is effectively revisiting the 2014 strategy of defending market share. Saudi Arabia, in response to Russia’s decision, made the biggest cuts to the price of its crude oil in more than 30 years. Aramco shares, in turn, fell below their IPO price for the first time.
The End Game
It is likely, in my view, that the endpoint will be similar to the last time this strategy was attempted. Oil prices could dip all the way into the $20s. Russia will probably eventually decide that the pain is too great, and come back to the table. In the interim, many shale oil producers will be forced into bankruptcy.
Meanwhile, a bigger existential risk looms for the global oil industry. Electric vehicles (EVs) will continue to gain market share year after year. If we are entering a multiyear oil price war — as seems likely — it is possible that the oil industry never recovers.
Whole article worth the read
https://www.forbes.com/sites/rrapier/2020/03/08/what-was-russia-thinking-in-refusing-to-cut-oil-production/#147e1f8a7fcc
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Thank You!
Poor, poor Putin...
