From Gotti today:
When OPEC started the price war last year the Saudis expected that the US producers would fall over quickly — their costs were too high.
But they didn’t collapse because we now know that about 50 per cent of the US oil production was forward sold at high prices. These forward sales are rapidly running out and during the next few months if oil stays down we are set for extensive US closures and major loan losses.
But there will be a production cut, which makes the shorters nervous, and many who have made a fortune in the last year are saying that it is time to close out positions. As the oil price rises that short covering will gather momentum. The big snow dump on the US east coast accelerated the trend.
In the Middle East, the position of Russia has become vital. For Russian President Vladimir Putin there is a much wider agenda. He brackets oil with a new world order where Russia is a major player. The new order starts with Syria, where Russia has brought together Iran and Iraq to attack Islamic State. Putin wants to link the Syrian settlements to the current Ukraine sanctions. He is looking to form an oil cartel where Russia will be a pivotal player. But to achieve these goals he must involve the US-friendly Saudis.
One must always be sensitive to geopolitics in the oil market and you never know but this leaves me cold. What new oil block is this Russian-led entity? Iran and Saudi Arabia are at other’s throats in Yemen, Iraq, Syria and as far afield as Sudan, locked in a regional proxy war for hegemomic dominance. Iraq is still a US vassal even if it’s toying with Russian alliances, and Saudi is determined to squash US shale which will require a price in the $20 for many months not just a downside spike given cash costs are very low.
The US has masterfully played one against the other with its lifting of Iranian sanctions, has hobbled Russia as its Budget collapses and, in my view, will still be able sustain decent shale oil output over the cycle.
Putin is not some criminal genius. He’s the troubled head of a failing state. There is nothing in this that boosts oil that I can see.