Matt Egan (Matt Egan)
New York — Vladimir Putin knows that the fragile petroleum industry of America is built on enormous debt. So when Saudi Arabia urged to cut production to ease the glut in the market, Putin leapt at the opportunity.
Last week, Russia shocked the world by tearing up his uneasy Alliance with OPEC. Moscow’s refusal to support the cartel intended to sink an American company for the extraction of shale oil, which expect higher prices in a sea of cheap oil.
Apparently, Russia’s strategy is aimed at American kancevica is because of their debt-fueled growth, Russia lost the 2018 title of world’s largest oil producer.
“Their response is an attempt to cripple the US shale industry,” — says research Director of commodities and energy research firm “Clipper data” (ClipperData) Matt Smith (Matt Smith).
On Monday, the market collapsed when Saudi Arabia has promised rigidly to react to the Russian move, and lower oil prices. In the end of oil in the US fell by 26% to a four-year low of 31.13 per barrel. This is the worst result since 1991.
Crude oil is now so cheap that many us shale companies will be forced to cut production. Rumors about bankruptcy are already crawling on the oil industry, causing shares of the SPDR S & P Oil & Gas ETF reached the lowest level since 2006.
Shares of major oil companies like ExxonMobil and Chevron who have built their business model on confrontation of cheap oil, fell by 12%. The deadlock was both exploration and mining companies: shares of Pioneer Natural Resources fell by 37%, and Occidental Petroleum — 52%.
Energy collapse threatens a repeat of the oil crisis 2014-2016, which bankrupted dozens of American oil and gas companies and has led to hundreds of thousands of layoffs. Although the industry survived, this experience was very painful.
“Russia believes that the us shale currently is particularly vulnerable, says the energy strategist “of Rabobank” (Rabobank) Ryan Fitzmaurice (Fitzmaurice Ryan). — We believe that Russia was targeting American shale oil companies with their debts”.
“In the crossfire”
In response to the Russian gambit Saudi Arabia at the weekend launched a price war. Kingdom lowered the sales price for April 6-8 dollars and promised to increase production and is the complete opposite to what is required in this situation.
“Between Russia and Saudi Arabia turned a serious struggle, and the crossfire got all the others,” says Director of global energy strategies, RBC Capital Markets Michael Tran (Michael Tran).
It is no secret that Russia and its oil companies are losing patience with attempts by OPEC to restore balance in the oil market. For many years Russia would support OPEC production cuts to keep crude oil prices. However, every reduction of production Russia is losing market share fast-paced energy industry in America — much to the anger of the Russian oil bosses.
Russian state oil company Rosneft, called the Alliance with OPEC “masochism”, because of which the production of us shale oil is booming.
“We, yielding to their markets, remove them with cheap Arabian and Russian oil, to make room for the expensive American shale. And to ensure the efficiency of its production”, — said the representative of “Rosneft” on Sunday.
Revenge for sanctions?
In addition to the fight for market share, analysts say, Russia may retaliate for the recent energy sanctions Washington, these measures became possible thanks to the revolution in shale oil.
So, just three weeks ago, the administration trump announced sanctions against subsidiaries of “Rosneft” in response to its support of the regime of Maduro in Venezuela.
“It seems that the Russian strategy is aimed not only at American shale companies, but the policy of sanctions, which is provided to American energy abundance”, — wrote the head of global commodity strategy at RBC Capital Markets Helima Croft (Helima Croft) in a Memorandum to clients Monday.
Croft suggested that to challenge the oil shale industry USA Moscow convinced Igor Sechin, CEO of Rosneft and a Putin confidant.
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© 2007-2020, All Rights Reserved Bahrain|Iran|Iraq|Lebanon|Palestine|Saudi Arabia|News|WarA view from the other side: CNN (USA): why Russia and Vladimir Putin announced America’s oil war.