Saudi may flood market

[Fraser921]

https://markets.businessinsider.com/news/commodities/oil-outlook-saudi-arabia-opec-production-us-share-crude-supply-2023-12?_gl=1*mm8pko*_ga*NTI4MTUyNDIyLjE3MDE4ODYwOTg.*_ga_E21CV80ZCZ*MTcwMTg4NjA5Ny4xLjAuMTcwMTg4NjA5Ny42MC4wLjA

Saudi Arabia may wage oil 'market share war' against the US, reversing output cuts and unleashing a flood of supply, energy expert says.

* Saudi Arabia may wage a "market share war" against the US and flood oil markets with supply, energy expert Paul Sankey said.
* That would mark a reversal from Riyadh's strategy of curbing production to boost oil prices.
* "You've got to attack the guy that's making the marginal decision to drill or not — and that guy is Mr. Permian Basin."

Saudi Arabia is struggling to boost oil prices with production cuts and may soon make a dramatic reversal aimed at the US, according to energy expert Paul Sankey.

In an interview with Business Insider, he said Saudi Arabia may pivot to ramping up production to flush the market with a flood of supply in the first half of 2024. And that's not to target emerging producers like Guyana or Brazil.

"You've got to attack the guy that's making the marginal decision to drill or not — and that guy is Mr. Permian Basin," Sankey said, referring to the US shale epicenter.

He later added, "I think to be specific, it's a market share war."

Saudi Arabia is currently producing about 2.5 million barrels a day below maximum capacity. If the country follows through with additional supplies that sink crude prices, the goal would be to essentially "bankrupt" the US industry by making it unprofitable to drill oil, Sankey explained. It's a tactic Riyadh used in 2014 and 2020 to regain control over oil prices.

And right now, the set-up is similar to both earlier episodes, the market veteran said. There's a lack of support from the rest of OPEC as countries like the UAE keep producing more oil while Iran is eating into Saudi's share of Chinese crude oil imports. And then there's weakening demand, like what happened during Covid.

"In all three instances you've had the biggest problem, arguably, which is that the US is just making highs and new highs and even further highs in terms of its own production," Sankey said.

US crude production has exploded this year and recently hit a record high of 13.2 million barrels a day, according to the Energy Information Administration.

Meanwhile, global energy markets have become skeptical that OPEC+ is serious about its latest pledges to curb production. After the cartel's meeting last week, when members vowed to extend cuts, oil prices fell.

Its weakening hold over oil markets was on display again this week. On Monday, the Saudi energy minister told Bloomberg TV that production cuts could go past the first quarter. On Tuesday, the Kremlin also talked tough. But oil prices dropped further.

Sankey declined to comment on whether he has heard about plans to increase production from Saudi officials. But the time to act may come soon.

"I think what will happen is they'll wait through winter to see what's going on and maintain, as they've said, into Q1, their cuts," he said. "And then if things start to weaken from there, they're going to have to decide what they're going to do."

[Cliff_N]

Saudis tried to put the shale oil folks out of business. It was a dismal failure. Unless the Saudis no longer understand how prices are driven by supply and demand, only an economic ignoramus would consider such a strategy. We have many of these hanging out in Congress and the White House. My bet is the Kingdom is short on supply of these ignoramuses.

[dan_s]

Add to your heading: "Team Biden might be forced to enforce sanctions on Iran." That is more likely than Saudi Arabia "flooding the oil market".

[KGardiner]

If you’ve read Simon Watkins latest book “The New Global Oil Market Order”, it seems to me that the Saudis are still stinging from their last two attempts to flood the market and kill off US producers. 2014-2016 was disastrous as our upstream folks figured out how to make significant reductions in their per barrel costs. The tried the flood again at the start of Covid and quickly backtracked.

They lost credibility with the rest of OPEC and created a huge budget deficit.

They’d be stupid to try that again.

[Fraser921]

The point is they have done it twice. 3rd time a charm? What happened when crude went negative. I didn't even think that was possible

and the Democrats wouldn't allow trump to refill at 35.


Shoomah , the fool , said no

https://www.cnbc.com/2020/03/26/us-suspends-plans-to-buy-oil-after-funding-is-left-out-of-2-trillion-stimulus-package.html

I agree its foolish but how else can you force discipline. Everybody is over producing , at least at the moment

[Fraser921]

From the great analyst Paul Sankey:

"At the start of the week, with my flurry of commentary on “Saudi may start a market share war” commentary (CNBC, Business Insider, Sankey Research weekly video), started many debates, including why on earth Saudi would do that. But the set up is so similar to 2014 (Iran booming, US booming, supply booming, demand weakening, recalcitrant OPEC) it is a worth debate, max risk around 2Q 24, depending on US supply growth.
And China demand."

He adds later, regarding crude;

"Blaming speculators reveals ignorance; quants certainly add volatility, but not sustained direction. The losers are not oil producers but equity valuations on higher volatility.

"that fundamental research and logical investing in oil this year yielded completely the wrong result. In 2023, you needed to do all the fundamental research on oil, then do exactly the opposite of what fundamental forecasting told you.

The best recent example of how long onlys think was the plummeting US natgas price, with a strong long term secular bull story. When natgas went below $2/mmbtu at the beginning of 2023, long onlys started buying with both hands. Sure, it worked great for most of 2023, but it was far too early, with LNG growth not starting until 2H 2024 at best (later now with the delay to ExxonMobil’s Golden Pass). So 2024 looks tough for natty"

Continuing on opposite theme on NG

Natgas collapses below $2/mmbtu Henry Hub in February. BUY BUY BUY natgas stocks.