Original Title: Oil War
"If you control oil, you control all countries." This is what Henry Kissinger, the former US Secretary of State, understood about oil.
In the past century, around the "black gold" of oil, various "oil wars" have occurred in the world. These wars not only changed geopolitics, but also pushed the course of history. With the recent plunge in international oil prices, an oil war around the grievances of Saudi Arabia, Russia and the United States seems to have begun.
International oil prices hit the biggest weekly decline since 2008
After experiencing the largest single-day drop in history on the 9th, international oil prices have basically maintained a low and volatile trend recently. On the 13th, international oil prices rose slightly, ending the previous decline. But this week, international oil prices have fallen by about 20%, the largest weekly drop since the 2008 financial crisis.
As of the close of the 13th, the price of light crude oil futures delivered by the New York Mercantile Exchange in April closed at 31.73 US dollars per barrel, an increase of 0.73%. London Brent crude for May delivery closed at US $ 33.85 per barrel, an increase of 1.9%.
Buffett once said that as long as you stay in the market long enough, you can see a bunch of unexpected things. Recently, the international crude oil price has dropped from more than 60 US dollars at the end of 2019 to less than 30 US dollars in just over 2 months, which has really surprised many people.
BOC International analyst Qian Siyun said that the recent fluctuations in international oil prices largely depend on the positions and actions of major oil-producing countries. The sharp drop in oil prices on the 9th was mainly due to the failure of the Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia and non-OPEC oil-produced countries led by Russia to fail. Russia's refusal to reduce production further led to Saudi Arabia's retaliatory expansion of oil production and price reductions. The situation between Saudi Arabia and Russia has not eased since then.
According to Russian media reports on the 9th, the Russian Ministry of Finance stated that Moscow has sufficient resources to make up for the budget shortage in the case of oil prices at 25-30 US dollars per barrel, and can be maintained for 6 to 10 years in this case.
Saudi Aramco CEO Amin Nasser said on the 11th that the Saudi Ministry of Energy has asked Saudi Aramco to increase its daily crude oil production capacity from 12 million barrels to 13 million barrels.
On the oil market, rare good news came on Friday. US President Trump said on the 13th that he has instructed the US Department of Energy to purchase a large amount of crude oil for strategic reserves based on oil prices. The United States will save billions of dollars for taxpayers, help the US oil industry, and advance the beautiful goal of energy independence.
As an important international commodity, every move of oil prices can be described as affecting the overall situation, not to mention the plunge in prices. The slump in oil prices quickly set off a "heavy wave" in the international financial markets.
Take the stock market as an example. On the 9th, global stock markets encountered a "Black Monday" this week. Among them, the US stock market, the global stock market leader, fell 7% on Monday, rarely triggering a fusing mechanism. Based on the total market value of U.S. stocks at 44 trillion U.S. dollars in the previous trading day, a decline of 7% as a whole, the U.S. stock market value has evaporated by 3 trillion U.S. dollars, or about 21 trillion yuan.
Saudi and Russian "prisoner's dilemma"
Since the end of 2016, in order to cope with the global oil surplus brought about by the U.S. stock shale oil revolution, OPEC member states led by Saudi Arabia and non-OPEC oil-produced countries led by Russia have carried out OPEC + production reduction and price protection actions to this day. Oil prices remain in the mid-to-high range of US $ 50-70 per barrel, at the cost of more than three years of declining Saudi and Russian market shares, and US shale oil's share has grown regardless of price changes.
In the opinion of Huatai analyst Zhang Jiqiang, the main cause of the failure of Saudi Arabia and Russia to reduce production is the spread of the new crown pneumonia epidemic. Under the impact of the epidemic, global economic growth is expected to weaken, and crude oil demand is under pressure. It's getting harder and harder to make the cake bigger, and the competition for cutting the cake becomes fiercer. The overseas epidemic continued to spread and entered an outbreak period, which had a significant negative impact on the normal operation of the economy, which in turn suppressed demand for crude oil. From the perspective of the global crude oil supply and demand balance sheet, there is an excess of global crude oil production capacity. In particular, the production shares of Saudi Arabia and Russia in OPEC + countries have continued to decline to their lowest levels in recent years, which does not match their status of lowest mining cost.
Zhang Jiqiang believes that the current choice between Saudi Arabia and Russia is somewhat similar to the game under the "prisoner's dilemma". The main reasons for Russia's refusal to limit production may be: on the one hand, Russia ’s fiscal position is highly correlated with oil exports, and choosing to increase production by competing for market share is also a means to improve its fiscal position; on the other hand, Russia ’s Beixi 2 natural gas pipeline project U.S. sanctions and other reasons, the use of "self-harm eight hundred, kill one thousand" way hope to reduce oil prices to detonate higher production costs, financing and cash flow conditions of the United States shale oil companies are also poor.
As for the reasons for Saudi Arabia's initiative to reduce prices and expand production, Zhang Jiqiang believes that its purpose is to compete for market share. With the development of the incident at this point, it has entered the double-lose situation in the classic game theory problem "Prisoner's Dilemma": Any party taking the lead in reducing production in the negotiations is equivalent to giving up the market to the expanding party and the United States. In view of this, Saudi Arabia will decide to lower the crude oil sales price and plan to increase crude oil production significantly. Of course, since the economic and fiscal conditions of Saudi Arabia and Russia are closely related to oil prices, maintaining low oil prices for a long time will eventually be a lose-lose situation. Therefore, it may be one of Saudi considerations to bring Russia back to the negotiating table to seek "reconciliation".
U.S. shale oil crisis
Galaxy Futures crude oil futures analyst Liu Yanyi said that from the perspective of output reduction and output alone, Russia deserves to cooperate at the meeting to jointly support the price to save the market, but from the perspective of the game of big powers, Russia ’s refusal to reduce production has its rationality: purpose It has caused a huge impact on the US shale oil industry and successfully countered the United States.
As mentioned earlier, Saudi Arabia and Russia represent OPEC and non-OPEC oil producing countries, respectively. The key reason for the two parties to jointly form OPEC is that after 2014, the United States has matured its shale oil technology and started mass production and export. We hope to maintain high oil prices by limiting production. However, this has given American shale oil a chance. In recent years, the large-scale production and export of American shale oil has not only freed the United States from its dependence on imported oil, but has also successfully ranked among the world's largest oil producers.
Statistics show that in 2018, U.S. oil production accounted for 16% of the global oil market, which was the same as Saudi Arabia and Russia. By 2019, the United States' market share will further rise to 18%, surpassing Russia and Saudi Arabia's 16% and 15%, becoming the world's largest oil producer.
However, it must be seen that the cost of US shale oil is much higher than that of Russian oil. Zhu Kunfeng, deputy director of HIS Markit China ’s oil and gas upstream research, said that the average price of the United States' shale oil was more than $ 40 / barrel, while the main contract on the 9th US crude oil futures plummeted to $ 27 / barrel. If international oil prices continue to fall, it will definitely hurt US shale oil production.
According to Russian media reports, Russian President Putin previously met with Igor Sechin, president of Rosneft, Russia's largest oil producer. During the meeting, Igor Sechin complained directly about Russia's participation in OPEC's production reduction agreement. Igor Setin believes that Rosneft's current operating cost is only $ 3.2 per barrel and it can withstand the price war.
Liu Qian, deputy director of the China Central Asia Research Center at China University of Petroleum (Beijing), believes that Russia clearly wants to squeeze US shale oil out of the market. Rosneft's output accounts for more than half of Russia's total output, and the company has always opposed production cuts, arguing that it is Russia's self-limitation that, while raising oil prices, gave up market share to the US shale gas. Russia also wants to shake up the US shale oil business model linked to the financial system, and retaliate against US actions to sanction Russia ’s Beixi 2 gas pipeline to Europe and seize the European market.
In addition to the high cost of the US shale oil crisis, it is also manifested as a debt crisis.
Moody's statistics show that North American oil and gas companies will have more than $ 40 billion in debt due in 2020 and more than $ 200 billion in debt due in the next four years. This result will lead to a significant writedown in the region and may even be possible. Set off a new wave of bankruptcy.
According to a recent report by the Wall Street Journal, the above-mentioned debt maturity has the deepest impact on the non-shale field. All companies involved in shale resources, including exploration producers, oilfield service providers and even pipeline operators, will be affected. Producers are struggling due to the special nature of shale wells. As debts mature and oil prices continue to fall, their insolvency makes them "inappropriate to seek capital." It will become increasingly difficult to maintain production levels. Bankruptcy is only a matter of time.
IHS Markit vice chairman and petroleum expert Daniel Yergin also said that although the United States has become the world's largest oil producer and an important oil exporter, the financial and capital markets have become wary of shale, and huge energy debts have become their "nightmare".
Goldman Sachs further pointed out that U.S. shale oil producers are an important part of the U.S. high-yield bond market, accounting for 10% of the entire market; if its debt situation continues to deteriorate, it will inevitably impact the stability of U.S. stocks and the entire U.S. financial system. .
The impact of the slump in oil prices on China
For a big oil consumer like China, is the plunge in oil prices a big deal?
In this regard, Hua Changchun, chief global economist at Guotai Junan Research Institute, said that first of all, a sharp drop in oil prices will be conducive to saving expenses and providing policy space for the Chinese economy. China is a net oil importer, and falling oil prices will reduce Chinese spending and increase the current account surplus. It is estimated that China will save 110 billion US dollars of expenditure, accounting for 0.78% of GDP. In addition, crude oil prices have plummeted, reducing transportation costs and helping to control PPI and CPI. Based on the annual calculation of US $ 40, China's PPI in 2020 will be 4 points lower than the previous estimate, which is -4.1%; CPI will be 0.3 points lower than the previous estimate, which will be 3.7%.
But Hua Changchun reminded that the plunge in oil prices is not conducive to the stability of China's financial market. The plunge in oil prices will hit the fiscal revenues of oil exporting countries, which may lead to the return of petrol dollars, thus putting pressure on global liquidity and capital markets. In addition, a sharp drop in oil prices will also shake the global capital markets and affect our stock market emotionally.
Galaxy Securities analyst Xu Dongshi took a more conservative view. Xu Dongshi believes that ultra-low crude oil prices, especially the rapidly falling crude oil prices, not only bring many risks to the financial market and the world economy at the same time. If low crude oil prices continue, the world will fall into deflation, even if it is a production country like China. It will definitely benefit from it.
Xu Dongshi pointed out that lower crude oil prices will bring deflation risks globally. For developed countries, Europe and Japan will face deflation risks, which will adversely affect the economy, and the United States will not benefit from low oil prices. Due to the decline in crude oil prices, oil-producing countries will reduce their income. Crude oil prices will further reduce commodity prices, and the economic conditions of resource countries will deteriorate. When the global economy deteriorates, China's exports, foreign investment, and overseas business will inevitably be affected. It is difficult for China's economy to survive on its own.
Author: Chen Kangliang