Oil Price War and Liquidity Crisis Coming

Mish

Saudi Arabia kicked off an all-out oil war on Saturday, Some expect oil at $36 when the futures open at 5:00PM Central.

Bloomberg reports Aramco Slashes Crude Pricing, Starting Oil War as OPEC Flops.

Saudi Arabia kicked off an all-out oil war on Saturday, slashing official pricing for its crude and making the deepest cuts in at least 20 years on its main grades, in a bid to push as many barrels into the market as possible.

The cuts in monthly pricing by state producer Saudi Aramco are the first indication of how the Saudis will respond to the breakup of the alliance between OPEC and partners like Russia. The kingdom plans to accompany the price cuts with a hike in crude supply, according to people with knowledge of the situation.

What' Going On?

Saudi Arabia and Russia want to kill the US oil industry and frackers.

The Financial Times reported “Russia has had enough of the shale guys living off Opec-plus,” said one person familiar with negotiations, referring to the cartel and allied non-members.

Junk bonds would get crushed over this. And that will take the market with it.

Blackmail Revenge

Image placeholder title

Please recall Trump Blackmails Germany With Sanction Threats Over Nord Stream 2

Angela [Merkel] you got to stop buying gas from Putin,” said Trump.

$36 at the Open Today?

We find out in about an hour.

Crude Collapses Since Start of Year: A Credit Implosion Up Next

On Friday (before the oil price war was official), I commented Crude Collapses Since Start of Year: A Credit Implosion Up Next

Credit Implosion Coming Up

A lot of leveraged drillers and crude suppliers dependent on prices above $50 will see a credit implosion.

That's just a start.

Supply and Demand Shock

A Supply Shock and a Demand Shock are Coming Up.

Deflationary Outcome

As noted previously, a Very Deflationary Outcome Has Begun.

Blame the Fed.

Deflation is not really about prices. It's about the value of debt on the books of banks that cannot be paid back by zombie corporations and individuals.

See the previous link for discussion.

Liquidity Crisis in Energy Space

What better time than now to blow up US oil producers heavily in debt as an act of revenge?

The liquidity crisis will quickly spread far beyond energy.

Mike "Mish" Shedlock

Comments (43)
No. 1-15
DBG8489
DBG8489

Price wars for now.

But these are the kind of things that can start shooting wars...

lol
lol

3 bubbles the Fed must not let deflate (ever),stocks,bonds,oil,which means tens of trillions will have to printed (right now)to buy more time.If any of these schemes even drop 30-40%,the Trump govt will collapse on it's ass which means a military junta will seize power and declare martial law.

Ivorin
Ivorin

As pointed out in this blog and others, there are at least three massive bubbles: stocks, real estate and low-grade corporate bonds. Even before the coronavirus, these three seething pits of malinvestment and zombification were ripe for implosion. Yet each day, they defied gravity and got bigger, seemingly with no end in sight.

Well, if more than a pin was needed to prick them, now they have a microscopically sharp spear poised to skewer all three bubbles simultaneously!

121263
121263

All kinds of credit problems will arise the longer cash flows are hurt by the virus. Many small businesses that operate on thin finances and the 80% of Americans who live paycheck to paycheck will be wiped out and those jobs and demand will not come back in a V. Remember just like the mortgage debacle a credit crisis starts from the weakest credits and works it’s way up the latter. Just a thought from the old bond trader.

Mish
Mish

Editor

Crude Opened - down 11.00 or so and touched near $30. Up about $2 now but gyrating wildly

Freebees2me
Freebees2me

Monetary stimulus will be ineffective. The pain is coming.

As crazy as it sounds, whoever the Dems put up may walk into the White House. Trump is not showing leadership on the Coronavirus and he'll jawbone the Fed for negative rates.

Negative rates are a super tax on Baby-Boomers who have saved and now have to eat into assets to live.

Start saying it: President Bernie or President Biden or President Hillary...

AWC
AWC

Just producers following demand over the precipice. Nothing more.

Sechel
Sechel

I read the FT and Bloomberg piece. I don't see how U.S. shale is the primary target since Saudi Arabia lowered their price after talks with Russia collapsed. I doubt Russia is that well positioned to weather a downturn. Russia is basically a 3rd world economy highly dependent on energy and minerals for their income. But I must say the timing feels very odd considering how inelastic oil demand typically is to price but now with the Coronavirus shock they'll literally get less money for less output. if Saudi Arabia gets $36, everyone gets $36. Saudi Arabia has their own financial worries. I don't see how any of this sounds planned or logical

I'm guessing everyone is simply fighting over how to carve up a smaller pie

abend237-04
abend237-04

I think the Saudis saw a replay of the mid 1980s coming and went all-in to prevent it and send a message to Putin. Opec members were cheating massively then on "agreed" quotas and SA was cutting production to maintain prices. It almost took them out of the oil business doing it. They were down to less than 4 million barrels per day when they lowered the boom then...like they've done now.

I suspect everybody in the oil business, Opec and others, are about to discover, again, the need to listen when SA speaks.

truthseeker
truthseeker

Mish please don’t be so politically correct that you refuse to post my comments almost like you are afraid you may offend somebody.

truthseeker
truthseeker

Where are my comments Mish?

lol
lol

Still way too high,if based on demand oil should have never risen above $10-11 per barrel.The Fed has been propping it up since 2014,the problem they now face is continued relentless collapse in demand,now they're faced with printing trillions DAILY to prop up everything to buy time till after the election,then everything crashes an burns!!

Mish
Mish

Editor

Truthseeker I can see your comments and so can others.
After you post a comment, you may need to refresh your screen. Happens to me all the time.

Freebees2me
Freebees2me

The real story isn’t the effect on Saudi Arabia or Russia or the USA, it’s the effect this will have on the rest of the world’s oil producers who borrowed in dollars and now can’t pay those loans back with oil priced this low.

Six000mileyear
Six000mileyear

Saudi Arabia has debts to pay, it had to cut prices and increase production.