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Page added on November 20, 2015
Saudis Planning For A War Of Attrition In Europe With Russia’s Oil Industry
Russia’s central bank recently warned about the growing financial risks to the Russian economy from Saudi Arabia encroaching upon its traditional export market for crude oil. Russia sends 70 percent of its oil to Europe, but Saudi Arabia has been making inroads in the European market amid the oil price downturn.
The result is a heavier discount for Russia’s crude oil, the so-called Urals blend. Bloomberg reported that the Urals typically lands in Rotterdam, a major European destination, at a discount to Brent of around $2 or less. But the discount has widened to $3.50 lately due to increased competition from Saudi Arabia. “Oil supplies to Europe from Saudi Arabia are probably adversely affecting Urals prices,” the Russian central bank warned in a recent report.
Russian officials have accused Saudi Arabia of “dumping” its oil in Europe, a move that Rosneft chief Igor Sechin said would “backfire.”
Russia’s economy has been battered by the collapse in crude prices, compounded by the screws of western sanctions. The Russian economy could shrink by 3.2 percent this year.
Oil exports account for around half of the revenue taken in by the Russian government. And for an economy so dependent on oil, it is no surprise that the plummeting crude oil price has led to a dramatic depreciation of the ruble, although over the past month the currency regained some lost ground. The weakening currency has pushed up inflation, which creates a conundrum for the Russian central bank.
To stop the ruble from plunging further and to keep inflation from spiraling ever upwards, the Russian central bank took aggressive action by hiking interest rates to as high as 17 percent at the beginning of 2015. However, that has negatively impacted the economy. As the ruble stabilized, the bank dialed the interest rate back to 11 percent, where it stands today.
In response to the tough financial circumstances that Russia has found itself in, it sees no choice but to squeeze as much oil out of its aging fields as it can. So far, it has succeeded to some extent. Russian oil production is expected to rise by a modest 70,000 barrels per day in 2015, averaging 10.75 million barrels per day (mb/d) over the course of this year. Output hit a post-Soviet record of 10.78 mb/d in October, according to OPEC’s latest monthly report.
Image URL: http://cdn.oilprice.com/images/tinymce/nickatr1.jpg
However, the upside to Russia’s oil production is limited. The Russian government needs revenue, so is not keen to cut taxes. The government is mulling a delay in the planned cut in export taxes, which, according to OPEC, could result in oil companies paying an additional $2 to $3 billion more in taxes. That could modestly cut into overall Russian oil production, perhaps pushing output down by 0.1 to 0.2 mb/d. In any case, Russia probably can’t boost output any further. OPEC predicts Russia’s oil production will remain flat through next year.
Globally, the competition between oil exporters won’t ease in the near term. There are still too many barrels of crude floating around. OPEC predicts that non-OPEC supply will contract by just 0.13 mb/d in 2016, a rather trivial amount considering the extreme cut backs in investment and drilling activity.
Despite the fact that OPEC officials have consistently put on a brave face in public, insisting that markets will balance relatively quickly, OPEC’s numbers tell a different story. The cartel sees U.S. shale contracting by just 100,000 barrels per day in 2016 from 2015, a volume that is nearly offset by several new projects beginning operations in the Gulf of Mexico.
Which brings us back to Europe. Saudi Arabia could be playing a longer game, intensifying its market share strategy by encroaching on Russia’s traditional market in Europe. An increase in Saudi oil flowing to Europe threatens to undermine Russia’s principle market. In its November report, OPEC reported that the Urals discount to Brent “almost tripled in October amid plentiful supplies, sagging refinery margins and wide availability of alternative grades from the Middle East.”
14 Comments on "Saudis Planning For A War Of Attrition In Europe With Russia’s Oil Industry"
JuanP on Fri, 20th Nov 2015 12:40 pm
Or, maybe, the Russians are diversifying their energy exports after realizing that selling so much oil and gas to Europe was against their best interest. So, Russia is now selling more oil to Asia, particularly China and Japan, and less to Europe, and the Saudis are picking up Russia’s European leftovers.
The Europeans are screwed either way because they don’t have enough local fossil fuels left and oil and gas available for export will inexorably decline in the future. Europe is headed towards a very hard crash and being incredibly stupid by alienating Russia, their biggest energy provider, by siding with the USA on the wrong side of history.
Russia can now claim the high moral ground and has become the new leader of the international community and the free world.
Davy on Fri, 20th Nov 2015 2:26 pm
Wow, Juan, that was quite an endorsement:
“Russia can now claim the high moral ground and has become the new leader of the international community and the free world.”
Juan, and maybe Putin will get a Nobel peace prize for being a model world citizen.
Russia is a turd with just a little bit less stink than the other turds. Have you read about what is really going on in Syria with their bombing. There is little smart bombing going on. Anything that moves and resembels ISIS is being leveled. How about that for leadership.
Kenz300 on Fri, 20th Nov 2015 2:40 pm
Fossil fuels are the past….alternative energy sources are the future……….
China pledges to achieve cuts to greenhouse gases|Politics|chinadaily.com.cn
http://usa.chinadaily.com.cn/china/2015-11/20/content_22486817.htm
————–
Renewables to Overtake Coal as World’s Largest Power Source, Says IEA
https://ecowatch.com/2015/11/10/renewables-to-overtake-coal/
apneaman on Fri, 20th Nov 2015 3:15 pm
Kenz you fucking retard, did you even read the ecowatch, empty promises, article? It’s all bad news dressed up as future change that ain’t gonna happen. Oh dirty toxic habitat destroying alt’s will grow some more, but it’s already way too late to even slow down AGW. Apes will never, never stop burning carbon and nobody can force any country otherwise. Unless you want to bomb them. Have you ever wondered why next week is COP21? Because the first 20 were monumental failures. This time is different. Yeah same as before. Apneaman pledges to lose weight and quit smoking…..as soon as my stash of 500 cartons of cigarettes are done and the grocery stores stop selling ice cream. I promise…..I really, really, really mean it this time. Really.
Trust in Me
https://www.youtube.com/watch?v=F1ILPl5FQaM
Davy on Fri, 20th Nov 2015 4:07 pm
Kenzzy the 300 is extremely annoying. He appears to be getting desperate recently with increased postings betraying a cognitive dissonance of a failed greenie-techno-cornucopian narrative.
Kenz300 let the evil spirits that posses you leave and join the focking human race. Open up and discuss the vital issues with your fellow humans. Be a man and face criticism in the battle of ideas. Unless you are really a bot in that case r2d2.
onlooker on Fri, 20th Nov 2015 4:16 pm
I am afraid someone like Kenz is both to afraid and too reliant on the feel good cornie narrative to disengage. Their is some who never will face the truth and prefer it that way.
shortonoil on Fri, 20th Nov 2015 4:54 pm
As oil prices continue their long term downward decline, producers will continue to expand production to its maximum to compensate for lost revenue:
http://www.thehillsgroup.org/depletion2_022.htm
Oil prices began their decline when a barrel of oil, as result of depletion, could no longer power sufficient economic activity to pay for it. This situation was aggravated by Central Bank response to a declining economy. They expanded the money supply, and adopted ZIRP policies. This allowed for additional over production that further depressed prices. The world’s oil producers have been made victim to these two events for which they had no control. Until the real cause of the present situation is recognized no mitigation of the problem can occur. The end result will be the continuation of a deflationary spiral that will collapse the world’s currency, banking systems, and petroleum industry.
http://www.thehillsgroup.org/
bug on Fri, 20th Nov 2015 5:28 pm
Short, I loves your posts.
Your paragraph explanation of “Oil prices began to decline when…………” is good.
I have tried in my manner to explain this to co-workers as the topic comes up a lot. I am usually on the receiving end of a blank stare followed by “it’s
Obama’s “, so it goes.
onlooker on Fri, 20th Nov 2015 5:49 pm
Yes Short like BC has much technical expertise into the nitty gritty of what is happening world-wide in the economic situation and why. Us doomers appreciate this detailed information though we are thoroughly aware of the inexorable downward pattern.
rockman on Fri, 20th Nov 2015 5:57 pm
Juan – Amazing logic, eh? The country whose economy is much more dependent on its oil revenue is intentionally forcing down oil price to hurt another country’s economy with a much more diversafied revenue stream that isn’t as dependent on its oil exports.
I wonder if they even did a rough back-of-the-napkin estimate of the GDP damage low oil prices are inflicting upon Russia and the KSA.
theedrich on Fri, 20th Nov 2015 7:08 pm
Well, the KSA will probably be supported by the U.S., since “our” government is even now supplying them with missiles and such to massacre more Yemeni civilians. And, of course, we have — thanks to FDR in Feb 1945 — a long-standing secret agreement to support Araby forever, no matter what they do. Moreover, we are importing their excess population very rapidly, so they will have less of a burden of trash to support.
Russia is in a tight spot. However, they do have one ace in the hole: Vladimir Putin, who is vastly more intelligent than Ø.
GregT on Fri, 20th Nov 2015 7:15 pm
“Russia is in a tight spot. However, they do have one ace in the hole: Vladimir Putin, who is vastly more intelligent than Ø.”
They also have oil, natural gas, minerals, trees, farmland, a citizenry used to living in what we in the west would consider to be poverty, AND Vladimir Putin, who is vastly more intelligent than the vast majority of the politicians that we have in the west.
Kenz300 on Fri, 20th Nov 2015 7:19 pm
Even the Oil and Gas companies are pulling their heads out of the …….. sand and have begun to realize that the end is near…… fossil fools are the past…… alternative energy sources are the future…..
Oil and Gas Companies Make Statement in Support of U.N. Climate Goals – The New York Times
http://www.nytimes.com/2015/10/17/business/energy-environment/oil-companies-climate-change-un.html?&moduleDetail=section-news-2&action=click&contentCollection=International%20Business®ion=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article
makati1 on Fri, 20th Nov 2015 8:14 pm
JuanP, Ap, short, onlooker, bug, GregT and theedrich, all see reality.
Some others only see what they want to see, as usual.
It must be difficult to see with those narrow blinders and rose colored glasses blocking reality. LOL