Analyst: US may bury Russian oil exports in the nearest future

Analyst: US may bury Russian oil exports in the nearest future
Analyst: US may bury Russian oil exports in the nearest future
7 April 2020, 16:06
The US fight for energy markets as part of its new doctrine will make the risks of the energy embargo for Russia higher than ever

Financial analyst Pavel Spider made a forecast in his blog on how the situation with oil prices will develop in the nearest future and what it threatens to turn for our country:

“By mid-April, total global consumption of oil and oil products will drop below 60 million barrels, which will correspond to losses of more than 40% of typical consumption (we are talking about losses of 40 million consumption). This is the fastest and most powerful compression in the history of the global energy market.

In the structure of consumption of oil and oil products, 70% is transport (and 11-12% aviation), industry 25% (of which 15% petrochemicals and pharmaceuticals), 4-5% consumption of households and companies.

By region, Asia accounts for 36% of world consumption, all of Africa and the countries of the former USSR 4% each, the Middle East 9%, Europe (West, East + Turkey) together 15%, Central and South America about 6.5%, North America 25% . In a stable macroeconomic situation.

Now the expected losses in Europe are about 65-70% or minus 10 million barrels of consumption, Africa is losing 25% (minus 1 million), the Middle East is about 30% (minus 2.7 million), the countries of the former USSR 45% or minus almost 2 million, Asia is about 33-35% (minus 12 million), North America minus 40-45% (loss of 11 million consumption). Not the most pessimistic estimates, maybe worse, that is, estimates on the upper, optimistic border. My calculations do not take into account deliveries to strategic state reserves, to commercial reserves, to intermediate transit hubs and to tankers for storage. This is consumption.

The most recent operational reports from American refineries suggest that the failure of consumption can be more serious, and this is in the United States, where the default situation is better compared to Europe in view of the transport specifics and culture. The minimum concentration of public transport with a significant transport shoulder, even under conditions of a complete blockade, will not affect the aggregated traffic too radically (in comparison with Europe).

As of March 27, production of jet fuel in the USA fell by almost 40% compared to the same period of the year.

These are the levels of the late 80s. In view of the inertia and specifics of the refinery, the failure of production will continue, because the entire aircraft got up, and the reserves for storing kerosene are not enough to work “in the warehouse”

Gasoline production loses about 35% relative to the "natural level". In terms of fleet, gasoline production has become one of the lowest in history.

Now, energy corporations store 247 million barrels of gasoline in reserves - this is close to the maximum for the entire time (261 million). Work on reserves is also impossible, which will mean the need to reduce the capacity utilization of oil refineries, as the estimated level of daily demand in mid-April is 5.5-6 million barrels (now they produce 7 million against the norm of 10 million). All this more than eloquently signals a real failure of demand.

Why all this? With a surplus of 40 million barrels, the global free reserves for oil storage (state + commercial), together with all available tankers, will be filled to capacity by the end of April. This is if nothing is changed, or if they argue for too long about who is to blame for the current energy crisis.

In order to somehow stabilize the market, not only OPEC with Russia, but the whole world should halve its production capacities. No 10 million will help and 15 million will not solve anything, even 20 million. For reference, Russia + Saudi Arabia together produce 23.5 million barrels of oil and oil products. The current situation is such that to stabilize the market it will not even be enough to completely throw two of the world's largest producers from the market, providing almost a quarter of world production.

But there is one caveat. The bottom for oil consumption will form in time for mid-April. Europe will be the first to cancel quarantine measures as soon as the number of new infected minus the dead minus the number of cured per day is zero. Italy and Spain will approach this point on April 12-14, the rest of Europe by April 20-25, the United States is about the same. But this process is not fast. By mid-May, only half of the oil consumption falling at the beginning of April will be restored, i.e. world consumption will be about 80 million barrels in mid-May, closer to 90 million by June-July, and then search for a new equilibrium point, a new balance. There will be no return to the previous 100-102 million this year under any circumstances. The economic shock will lead to irreversible losses for the year and a fall in the global economy, which will affect oil consumption by a decrease of 5-8 million consumption by the end of the year, i.e. about 95 million as of December 2020

And now the most interesting thing for the USA and at the same time terrible for Russia. All of Russia's oil and oil products exports in the best years were a little over 8 million barrels. The overabundance of oil on world markets led to the fact that the discount on new contracts for May a week ago was almost $ 15, or 2/3 of the price at that time - this is the most significant discount in the entire history of Russian oil supplies to foreign markets. This means that actual future deliveries are already near zero.

The energy balance at the end of the year will be such that one way or another, global producers will have to withdraw from the market 5-8 million, either through a collective reduction, or through the exclusion of any participants in the energy market. Even without the promotion of additional capacities from Saudi Arabia, Iraq and Kuwait, the world market surplus will amount to about 5-8 million, which is exactly equal to Russian exports.

Needless to say, this is too significant a trump card in the hands of the United States and Saudi Arabia to miss such a unique historical opportunity for them, which happens once in several generations? Taking into account the entire geopolitical background of the last 7-8 years, with the fierce struggle of the USA for energy markets within the framework of the new energy doctrine, the risks of the energy embargo for Russia are higher than ever. This does not mean that this will happen, but the possibility lies on the surface. So far, too much has been reduced to such a scenario. A depressed global economy will not soon restore its former energy needs, but even if it does, then by this point (in 2-3 years), Saudi Arabia with the countries of the Middle East and the United States will be able to block the falling 5-8 million from Russia without any problems.

The blockade of European energy markets for Russia will not only allow the United States to reconfigure the global energy market, clearing space for American companies, but also bury the Russian economy with all the ensuing consequences, and in total without a chance of recovery for a decade. This is not a technical issue; here it is an exclusively political issue. While someone was trying to bury the U.S. shale industry there (which is in an objectively difficult situation, but can be closed by funding from the Fed in 1 day and one button of a printing press), the U.S. may weigh out a total margin call for Russia. Therefore, these risks must be taken into account now, so that then there is no surprise. It will be a miracle if you can avoid ... "

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