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Nigeria, which produces some of the easiest-to-refine crude that typically commands a premium, has 30 or more unsold April-loading cargoes, traders say, equal to 30 million barrels or 30% of daily world demand.
The Nigerian National Petroleum Corp (NNPC) last week put the number as high as 50, and prices for one key Nigerian grade are now at a discount to dated Brent.
Demand for exports from the U.S. Gulf Coast has collapsed, traders said. U.S. exports had steadily increased in the last four years to more than 4 million barrels per day recently, but that is now threatened by the flood of cheaper Saudi oil.
“There are no buyers,” a U.S. Gulf Coast crude trader said. “Refiners in trouble, exporters in trouble, producers in trouble. This is a disaster with no end in sight.”
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CRUDE OIL MARGINS UP 20% EFFECTIVE FRIDAY 20TH MARCH
Maintenance margin as follows (Initial Margins, ie non-member rates will be 110% of these)
Tier 1 (currently Apr but will be May when applied) increasing from 4650 to 5600, +950 or 20.4%
Tier 2 (Jun) increasing from 4625 to 5500, +925 or 20%
Tier 8 (Dec) increasing from 3700 to 4450, +750 or 20.3%
Tier 20 (Dec21) increasing from 2925 to 3300, +375 or 12.5%
By*Tsvetana Paraskova*- Mar 22, 2020, 12:00 PM CDT
Saudi Arabia and Russia must have anticipated an oil price crash when they broke up their three-year-long bromance to push up oil prices.****Two weeks later and nearly 4 million bpd of total promised additional oil supply to the market next month, and Riyadh and Moscow are now counting the cost and trying to adjust government spending. The friends-turned-foes expect sharp drops in oil revenues in the near term, not only because*Brent Crude*is barely managing to cling to the $30 mark these days, but also because the coronavirus pandemic is leading to*huge demand destruction.**
Saudi Arabia*announced*this week that it is reducing government expenditures by US$133 billion (50 billion Saudi riyals), or nearly 5 percent of its budget spending for 2020 after the government approved “a partial reduction in some items with the least social and economic impact.”*
These measures were approved “in light of the noticeable development in the public finance management, and the existence of the appropriate flexibility to take measures in the face of emergency shocks with a high level of efficiency,” says Saudi Minister of Finance and Acting Minister of Economy and Planning, Mohammad Al-Jadaan, the official Saudi Press Agency reported.*
The Kingdom “has taken measures to reduce the impact of low prices of oil, and additional measures will be taken to deal with the expected drop in prices,” Saudi Arabia says, nothing that additional expenditures could be re-evaluated and potentially cut.**
Related: The Reason Why Russia Refused To Cut Oil ProductionEven before the collapse of the OPEC+ talks, Saudi Arabia’s finance ministry had asked government agencies to propose*a 20-30 percent cut*in their budgets due to the oil price slide, Reuters*reported*last week, citing four sources with knowledge of the plans. *
It looks like Saudi Arabia bets on tapping cash from its sovereign wealth fund to patch up government finances with oil prices three times lower than their break-even oil price.*
According to Fitch Ratings, Saudi Arabia*needs oil prices at $91 a barrel*in 2020 to balance its budget, all else being equal.*
“For countries in the Gulf Cooperation Council (GCC), we estimate that a change of USD10 in the price per barrel of oil tends to affect government revenues by 2%-4% of GDP,” Fitch said last week. The rating agency’s statement came a day after oil prices crashed by 25 percent as Saudi Arabia – a GCC member, OPEC’s top producer, and the world’s top oil exporter –*vowed*to significantly boost supply and slashed the price for its oil in a dramatic shift in its oil price-fixing policies of the past three years.*
The Kingdom is signaling that it can adapt to today's lower oil prices, but analysts are not buying this claim.*
At $30 a Brent barrel, the Saudi wealth fund will deplete fast and reduced government spending will stall projects, and the*already suffering*private non-oil sector will suffer further. That’s the near-term damage.*
The longer-term damage is the lack of funds for the ambitious Vision 2030 plan of Saudi Crown Prince Mohammad bin Salman, which was already going downhill even before the oil price collapse as the promised multibillion foreign investment and Saudi investment in “diversifying away from oil” weren’t exactly flowing to the Kingdom.*
“I think we are beginning to see that the vision 2030 is not going well,” * Jean-François Seznec, Non-Resident Senior Fellow at Atlantic Council,*said*on an Atlantic Council press call last week.*
There is a growing amount of tension among the population, even among the crown prince’s main supporters, Seznec said.*
“But he needs to make a big impact.*Now, his big impact is to force the Russians to give up and agree to the cuts, and if at the same time it destroys the U.S. shale industry so much the better,” Seznec noted.*
Related: Big Oil Prepares To Suffer In 2020
The Russians are also bracing for an oil price war, promising up to a*500,000 bpd production increase*and assuring the market they have enough resources to cover budget shortfalls*at $25-30 oil*for six to ten years.* *
The coronavirus pandemic and the lower economic activity, coupled with oil prices half the level before Russia and Saudi Arabia broke up the OPEC+ pact, will weigh on Russia’s revenues and budget, too.*
Russia’s revenues from oil and gas will be*US$39.5 billion (3 trillion rubles) lower*than planned, Russian Finance Minister Anton Siluanov said this week, adding that Moscow now expects a budget deficit.*
Analysts argue that Russia is in a better fiscal, financial, and political leadership position than Saudi Arabia to*win the oil price war.*
Yet, there will undoubtedly be economic pain for both sides in this war, which is already claiming the first collateral victims—U.S. shale, Canada’s oil industry, and the UK’s offshore oil and gas sector.*
It’s now a game between Saudi Arabia and Russia of who will blink first, and in this game, the Saudis seem to have overestimated their fiscal buffers and underestimated the coronavirus-hit enormous demand destruction
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I don't know what they thought would happen. Maybe they didn't expect prices to drop so hard and so fast but this was never going to play out quickly. The US Shale industry was not going to go bankrupt over night. It will take months for this to play out in the US.
Not sure where to place this post .. so move it if wrong spot please.... my question is to do with differences between Qm mini crude and Cl crude... i,m used to prices moving 1 tick at a time eg 1cent crude one tick ES etc tho Qm is 2.5 ticks or cents,,is there any techniques or strategies I should be looking for in regards to trading either contract or using one contract to help with trading the other? how have others seen this or been able to trade QM ,, or is it a contract out of trading favour for most... any input appreciated... cheers....Brent.T
These are arb'd appropriately already, there's nothing really to do with trading one versus the other. IMO, QM is a bit of a ripoff. You get half the value of CL, but you get a pretty awful tick size. So, let's say you want to make 10 ticks on a trade. You would normally buy .01 in CL but must buy .025 in QM.. you'd normally sell .11 in CL but must sell .10 in QM ... you make 7.5 cents.
This is just one scenario but it plays out a lot if you try to trade it frequently. If it were 1/10 size, it would be acceptable, but IMHO, trade CL for active trading, and put on a QM if you want to hold for something like 40+ ticks, where the tick size does not come into play. You'd use it if you wanted to accept the risk of trading 1 CL but want to put on 2 QM for equivalent risk. In this case, with a longer time frame trade, it makes a lot of sense.
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@Dolfin this is a great place for that question and @josh pretty much nailed the answer.
As he said there is an arb between CL and QM so the PROMPT months stay in lockstep. As such if you want to trade QM I would make trading decisions based upon CL but execute in QM. But as @josh says its an expensive contract to trade. Hopefully they will eventually launch a Crude Micro and if they do I suspect QM will die.
Drillers cut 40 oil rigs in the week to March 27, bringing the total count down to 624, the lowest since March 2017, energy services firm Baker Hughes Co said in its closely followed report on Friday.
