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Putin: Oil Glut Is Really About Saudi Desire To Crush US Shale

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

Awkward dirty little secret of price war involving the close US ally?

While it appears an expected emergency virtual OPEC+ meeting planned for Monday has been postponed, pushed back to later in the week to allow more time for negotiations, it’s likely that we’ll actually see the heated blame-game for the collapse in oil prices ratchet up and oh, in the meantime oil is set to crater come Monday as the feud is only expected to get uglier. 

Indeed the aggressive war of words has started, with Putin offering a biting Russian narrative aimed at the Saudis in remarks Friday: “It was the pullout by our partners from Saudi Arabia from the OPEC+ deal, their increase in production and their announcement that they were even ready to give discounts on oil” that drove the crash alongside the double-whammy of the coronavirus-driven drop in demand, Putin said according to Bloomberg.

“This was apparently linked to efforts by our partners from Saudi Arabia to eliminate competitors who produce so-called shale oil,” Putin continued. “To do that, the price needs to be below $40 a barrel. And they succeeded in that. But we don’t need that, we never set such a goal.”

Thus in one fell swoop Putin, ironically enough, framed the new ‘war on US shale’ as in reality a Saudi dirty little secret and motive despite all spin to the contrary, perhaps also seeking to inject division and tension in the close Washington-Riyadh alliance.

Both Russia and the Saudis opened the taps and prices plunged following Russia’s early March declaration that it would be quitting the OPEC plan to slash output by 1 million bpd, conditioned also on Russia-led non-OPEC countries cutting 500,000 bpd. Moscow reasoned that ultimately US shale-oil producers would be the ones benefiting as they had previously, filling the gaps in earlier curtailments. 

Putin’s attack has for the time being had the immediate effect of forcing Riyadh into the awkward position of having to deny it could have been a willing participant in deeper machinations to crush US shale producers in a price war. This as already the steep drop-off in prices have left some US shale producers saying they’re ready to initiate voluntary production cuts amid the ballooning oil glut, as the WSJ reported Friday.

Saudi Foreign Minister Prince Faisal bin Farhan responded to Putin in early Saturday comments, blasting the allegations as “fully devoid of truth.”

“Russia was the one that refused the agreement” the Saudi foreign ministry statement said. “The kingdom and 22 other countries were trying to to persuade Russia to make further cuts and extend the agreement.”

Energy minister and half-brother of Crown Prince Mohamed bin Salman said something similar, noticeably without taking the shale angle to the Russian accusations head-on.

“The Russian Minister of Energy was first to declare to the media that all the participating countries are absolved of their commitments,” he said. “This led to the decision by countries to raise their production in order to offset lower prices and compensate for their loss of returns.”

Interestingly, Bloomberg’s own summary of the OPEC+ unraveling tacitly admits what few pundits are ready to do, namely that the Saudis for all practical purposes have appeared ‘equal partners’ in squeezing US shale: “The Saudis, who have ramped up production to a record 12 million barrels a day in the past month and massively discounted the price of their oil, have insisted a new agreement must involve significant contributions from all OPEC+ nations and major producers outside the coalition, including the U.S. and Canada,” as the report puts it.


The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

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April 5, 2020

How convenient this all happened just weeks before the Corona Virus World-wide mayhem? In light of the 2017 released 88-pages Bundestag document, this Epidemic may go on for 3 years, so this seems like the logical reaction by the oil producers

April 5, 2020

I fail to understand this belief that the U.S. shale industry can be destroyed by low prices. My understanding is that the industry can get a well up and running from scratch within a very short period of time (look at the Bakken output in 16-19 as the oil price soared/slumped and rose again) The current deeply indebted small operators who are solely dependent on the shale plays will go bust with their assets purchased on the cheap, but the oil is still there and readily accessible to bring to market. Who can buy up those assets and take take… Read more »

April 6, 2020

Fact: Saudi Arabia only sells it’s oil in us$. usa needs KSA to have oil priced ONLY in us$. Conclusion: the seppos and KSA are colluding to try and fool Russia into production cuts, so that us fracking can steal more of Russia’s market share and boost us oil and lng to Europe. It’s been happening every time Russia agrees to cuts in oil production that us shale opens the taps and steals more of the market to keep their ponzi sceme afloat. Fortunately, Russia understands this and has finally taken them to task, by refusing to a production cut.… Read more »

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