The Saudis and the US ran into what they fought for
The policies of the United States and Saudi Arabia in the oil market have led to unpleasant consequences for both countries.
Leonid Krutakov, associate professor at the Financial University under the Government of the Russian Federation, writes about this in Izvestia.
He points out that tankers carrying more than 50 million tons of Saudi oil are currently heading to the shores of the United States. This oil, American experts warn, could collapse the American market and undo the US administration's efforts to stabilize the shale industry.
“So we met, as they say, loneliness and silence. The situation with Saudi oil on both sides of the United States is a direct consequence of the policies of Washington and Riyadh.
Washington has created a modern pricing mechanism on the planet's oil market, where the decisive factor is not the investment programs of producers or the interests of buyers, but the financial margin of stock speculators and intermediaries. Riyadh, using this mechanism, has repeatedly extracted (not without the consent and participation of the United States) excess profits, playing with the largest sales volumes in the world,” the expert writes.
According to him, now there is a reckoning for such a policy.
“First, Saudi Arabia pumped up its exports to record (almost 10 million barrels) volumes, causing the markets to collapse. And then, for the first time in market history, stock speculators played negative on WTI futures (-40 $/b). A huge gap has formed between today's price and tomorrow's price (contango).
The record contango made a simple two-way move with a record purchase of commercial (not “paper”) oil and its storage on tankers for resale in the future super profitable. And everything would have worked out for the Saudis, and everything would have worked out for them. But the collapse of futures brought the US shale industry to the brink of bankruptcy,” the author notes.
According to him, this was immediately followed by a shout from the White House, and the oil kingdom took up the veil.
“At first, Riyadh agreed to a general deal within OPEC+, and then announced an additional unilateral (voluntary-forced) production reduction by another 1 million barrels. Prices have gone up. Along the way, however, they began to reduce contango and the possible margins of commodity rather than stock speculators.
During the record contango, tanker charter prices increased tenfold (up to $300 thousand per day). Today the Saudis are suffering enormous losses. They are ready to give away their oil for free in order to avoid paying freight. To reduce the loss, it is necessary to again sharply play in the negative on futures, but the United States cannot allow this. Or sharply raise real prices today, which the excess oil on the market (including the Saudi oil armada) does not allow.
I would not like to reduce the analysis of the situation to a banal truth and a farce, but there is a very good Russian proverb. What they fought for, that’s what they ran into…” Krutakov summed up.
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