The Saudi fight with Russia is hitting U.S. shale producers and the administration may be preparing defensive actions, reports Phil Flynn.
Crude oil’s violent price moves may have only just begun (just as with equities) as it appears despite pressure by the Trump administration, the kingdom of Saudi Arabia is on a mission to hurt the global oil market. One of the main targets of the Kingdom’s fury is Russia that refused to give in to Saudi demands to cut production. Yet the first casualty of the production war may be U.S. shale producers.
Talk that the Trump Administration may work on a bailout for U.S. shale producers look to be a bit premature because the administration did not give specifics on its economic support plans. That may have to wait because Congress controls the purse strings. In the meantime, while the Saudi Kingdom and its price war suicide mission going full out with boosts of ‘flooding the market with 12.3 million barrels of oil a day in April and over 13 million barrel a day shortly the U.S. shale industry is going to go in deep retreat.
Yet to save the shale, a Federal bailout is a short-term answer, but to fix the problem, you may have to go to the source of the problem. The cause of the problem is Crown Prince Bin Salman. For a so-called world leader, it looks like the Price has lost control and may not be a good ally of the United States of America. The murdering prince that brutally ordered the killing of journalist Jamal Ahmad Khashoggi looks like he is out of control. That is not to say that the U.S. shale industry has done everything right. They, at times, spent too much and put production numbers ahead of profit. Yet what MBS has done is make an all-out assault on not only U.S. shale but on all his so-called allies.
The Trump Administration should hit back at the Saudis for their irresponsible actions. Their market manipulation tactics and what would be called product dumping in any other situation is illegal and should merit economic sanctions. The Trump Administration could use its affinity for tariffs and tax every barrel of Saudi crude. They could put pressure on Saudi investments like their movement into the United States refinery space. More economic pressure from the United States and its allies would make it clear to the Crown Prince that the global economy is not his plaything. With his irresponsible and selfish actions, it is no wonder that even his own family wants to overthrow him.
The American Petroleum Report (API) showed a crude glut but a very tight product market at least last week. The API reported that oil supply increased by 6.407 million barrels. Yet distillates fell by 6.679 million barrels, and gasoline fell by 3.091 million barrels.
The Bank of England cut rates by 50 basis points and the ECB’s Christine Lagarde is warning that a coordinated response may be needed to ward off a 2008 like fiscal crisis.
