Archives of “Pricing” tag

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Oil: Theater of war

  
Analysis, Crude
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A look at the competitors in the oil price war

A look at the competitors in the oil price war

Disposition

So we have now an all-out oil price war between Saudi Arabia and Russia.

Russia is planning to increase its oil supplies undoing the December output cut once its term ends in March. It is assuring that its fund reserves are ready to absorb the damage from lower oil prices for as long as up to 10 years (with oil prices at $25-30 per barrel).

Saudi Arabia, in response, prepares to increase its own supplies for up to 12mln barrels per day. It also offers its crude under huge discounts, especially in Europe, to push away Russia from its core market.

The opposition doesn’t end here, however: the situation is actually a triangle of relationship rather than a Russia-Saudi Arabia standoff. The US is involved heavily, but indirectly, although it may be not that obvious: recently they just commented that they were hoping to see the oil market in an “orderly” condition.

Let’s observe the starting points of each protagonist here.

The US

Strengths

  • ·The strongest world economy gives the US the highest strategic resilience to withstand any economic damage in the long-term.
  • ·The “newly-founded” domestic shale oil production satisfies a big part of domestic oil demand and enables oil exports.

Weaknesses

  • ·The strongest world economy pushes the internal domestic oil demand chronically higher than the domestic oil production capacities and hence obliges the country to import oil from other countries.
  • ·With the exception of just a few, the US shale oil producers’ break even price for a barrel of oil is well above the current price – that means, they are losing the game now and will most likely stay out as drilling new wells is not profitable.

US oil imports, exports

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US natural gas falls below $2 for the first time since 2016

  
  Analysis
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Natural gas prices crater

Natural gas prices crater
Mild weather in the US and massive shale production in the US has led to an abundance of natural gas in the US. The aim is to one-day convert it into liquefied natural gas to export but with the wild overproduction in tight oil, there’s no way to liquefy it or transport it. Prices in and around production areas are much lower than $2.
A reckoning is coming to shale soon, and even sooner if crude falls below $50 this year.

Unanswered phase one deal question is what imports China commits to (and the caveats)

  
Analysis, Politics
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Will there be a hard target? What about pricing?

Will there be a hard target? What about pricing?
Reuters today reports that China has pledged to buy nearly an additional $80 billion in manufactured goods from the US over the next two years plus $50B more in energy supplies. The deal also calls for Chinese purchases of agricultural goods to increase $32B over two years and imports of US services by about $35 billion.
However some of the details may be kept secret and instead we would get targets for four broad areas: energy, manufacturing, services and agriculture with a total near $200B above the 2017 baseline.
From the Chinese side they risk running afoul of WTO rules and the multilateral system they’re trying to uphold. However that could be mitigated by provisions in the deal that say the US will have to provide the goods at competitive prices.
Global Times editor (and party mouthpiece) Hu Xijin appeared to confirm the deal with that caveat:
As far as I know, China did make a commitment to expand imports from the US. China has a huge market which is growing quickly. It will be more of a test for the US whether it can provide enough products that Chinese market welcomes and are competitive in price.

Visualizing How Plunging Oil Prices Affect Currencies.The world consumes 93 million barrels of oil, which is worth $4.2 billion

  
  Education
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PETRO STATE
 

Every day, the world consumes 93 million barrels of oil, which is worth $4.2 billion.

Oil is one of the world’s most basic necessities. At least for now, all modern countries rely on oil and its derivatives as the backbone of their economies. However, the price of oil can have significant swings. These changes in price can have profound implications depending on whether an economy is a net importer or net exporter of crude.

Net exporters, countries that sell more oil abroad than they bring in, feel the sting when prices plunge. Less revenue gets generated, and this can impact everything from balancing the budget to the value of their currency in the world market. (more…)

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