Russia-Saudi price war for oil unabated

Bloomberg:

Russian President Vladimir Putin will refuse to submit to what the Kremlin sees as oil blackmail from Saudi Arabia, signaling the price war that’s roiling global energy markets will continue.

The unprecedented clash between the two giant exporters -- and former OPEC+ allies -- threatens to push the price of a barrel below $20, but Moscow won’t be the first to blink and seek a truce, said people familiar with the government’s position.

Putin’s government has spent years building reserves for this kind of crisis. While Russia didn’t expect the Saudis to trigger a price war, the people said, the Kremlin so far is confident that it can hold out longer than Riyadh.

“Putin is known for not submitting to pressure,” said Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank that advises government on foreign policy and economy. He has proved that he is ready for a hard competition “to protect national interests and to keep his political image as a strongman.”

After two decades at Russia’s helm, the president has enough experience to survive the current crisis, said three people, asking not to be named because the information isn’t public. Putin is not someone who gives in, even if the fight brings significant losses, said one person.

The entire oil market is watching and waiting to see if Russia or Saudi Arabia will balk at the painful price slump and call a truce. Brent crude has plunged from over $50 a barrel in early March to as low as $24.52 this week as the Gulf kingdom, angered by the Kremlin’s veto of deeper OPEC+ cuts, undertook a historic output surge just as the coronavirus pandemic wiped out demand.

The losses are already visible for Russia, weakening its currency and potentially putting the nation on course for a recession. The state budget, which is based on oil prices of just above $40 per barrel, may be in deficit this year, forcing the government to tap its sovereign-wealth fund just two months after Putin promised higher social spending.

U.S. President Donald Trump on Thursday called the price war “devastating to Russia” and said, “at the appropriate time, I’ll get involved.” The Wall Street Journal reported the White House is considering new sanctions against Russia as a means to push for higher prices. So far, the Kremlin has refused to change policies in the face of such restrictions.

Kremlin spokesman Dmitry Peskov attributed the threat of sanctions to “Russo-phobia.” The country is not in an oil-price war with anyone and is always ready to talk, “especially in such dramatic times,” he said.
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At this point, it looks like both sides are losing as are producers in the rest of the world.  There is no real market for the Saudi excess production so the kingdom is renting tankers to store the oil on.  Because of the coronavirus energy use is down dramatically in Asia and in Europe.  In the US the Texas Railroad Commission is looking at production cuts for the first time in over 50 years.  Some in the US want to consider bringing dumping charges against both the Saudis and the Russians.

Watching the Saudis and the Russians fight is a bit like watching two scorpions in a bottle from which neither is able to escape.