Saturday , April 17 2021

How does Saudi oil policy support rocky crude producers in America?

NEW YORK (Reuters) – Oil officials in the United States can take a breather after Saudi Arabia said it would support the global crude oil market.

Saudi Arabia announced on Sunday its intention to cut shipments by half a million bpd in December, and the kingdom was pressed to reduce supplies on the oil market next year.

There have been major changes in the situation in Saudi Arabia, a month ago, production was under pressure from US President Donald Trump to avoid the price of a barrel of oil reaching $ 100 per barrel, which means that the world's biggest oil exporter will not let prices fall.

Saudi Arabia's support for the oil market is positive news for American rock oil companies, especially those with high debt, making them more sensitive to price fluctuations.

"If you are a producer in Texas, you should be pleased with the fact that there are alternative suppliers in the market who want to keep prices subsidized," said Matt Smith, director of commodity research at Clipperdata.

Concerns about an increase in supply caused a fall in US oil prices last week, partly driven by developments in the United States, as US oil production companies increased production faster than expected at 11 million bpd in August for the first time. In addition to imposing less than expected sanctions on Tehran's oil, after the government gave temporary exemptions to eight countries to continue buying Iranian oil.

US oil prices fell 10 consecutive days until last Friday.

"The consensus among all members is that we need to do everything needed to balance the market, if that means reducing the supply of one million barrels per day, we will do that," Saudi Energy Minister Khalid al-Falih said at a conference in Abu Dhabi Monday.

There is a strong prospect for OPEC and its allies next month to cut production by 1 million bpd, according to Hamila Croft, head of global commodity strategy at RBC Capital.

Oil prices in the United States jumped almost 1% in early trade Monday, against selling on the stock market, but the rally faded and prices stabilized below $ 60 a barrel. The 11-day decline was the longest recession since the start of futures trading in 1983.

While the Dow fell around 2%, the performance of several oil stone companies, including Hesse and Pioneer Natural Resources, increased.

"For oil companies, whether rocky or not, it makes sense that the higher the price, the better," said Pavel Mulchanov, energy analyst at Raymond James.

Molchanov warns that companies make their investment decisions based on long-term oil price estimates rather than short-term movements.

However, some SMEs can receive debt to accelerate the use of opportunities in rocky oil fields, thus making companies more vulnerable to price fluctuations.

Saudi Arabia has its own reasons for maintaining prices. According to Bank of America Merrill Lynch, the kingdom needs Brent crude around $ 89 per barrel to balance its budget for 2018, much higher than the current price.

In 2014 and 2015, Saudi Arabia followed a very different approach to oversupply because the market was flooded with oil surpluses in an effort to drive high-cost producers, including US oil companies.

Crude oil prices fell to $ 26 per barrel in early 2016, causing dozens of oil companies to go bankrupt and lay off workers, but shale oil companies emerged from the crisis with stronger budgets and better technology.

It seems that Saudi Arabia has no desire to fight this war against stone oil again.

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