Last week, analysts expected Russia and Saudi Arabia to come to some agreement over crude production cuts both countries were expected to make… but neither country could really afford.
To be blunt, the deal everyone was expecting fell apart. The current 2.1 million barrels per day reduction expires on April 1, and Russia refused to accept the additional 1.5 million barrel per day cuts OPEC proposed. Now OPEC has taken the entire 3.6 million-barrel cut off the table, and everyone will be able to throw open the taps and flood the market with product.
Everything I’m looking at this week follows from Friday’s deal-breaker and the violent, double-digit decline in crude prices.
1. First and foremost, I’ll be analyzing the impact of the oil pricing war that erupted this weekend. The Saudis fired the first salvo on Saturday when Aramco cut export prices by as much as $7 a barrel to Europe and the Gulf Coast of the United States. This is a direct attack on Russian exports and American shale production. Expect massive retreats in crude prices from here on out until an agreement on cuts is reached.
2. Russian oil companies are delivering increasing amounts of oil to storage facilities at Rotterdam and other European locations and likely will be until the end of this month. The full extent of these moves will signal Moscow’s resolve in its fight against Riyadh for control of oil flows into Europe.
3. I’m currently examining intelligence from this past weekend that indicates major oil producing nations inside and outside of OPEC are using their sovereign wealth funds (SWFs) to short crude oil prices. That is, they are using prior oil and other trading revenues to bet against the price of their own current oil exports. This is going to drive the market price down even more.
4. And on the other side of the world, discussions with market contacts have revealed that the dramatic downward pressure on crude prices may push Venezuela into outright default.
These will be interesting, volatile times – buckle up.
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