OIL:
As soon as OPEC Secretary-General Mohammed Barkindo left the building after a 2-day meeting in Austria on March 6th, 2020, I was already waiting to hear what he had to say. Despite saying that they were adjourning the meeting, he emphasised that discussions with the Russians would continue over the phone.
Fast-forward to March 13, 2020 and both deputy energy minister Pavel Sorokin and his boss Alexander Novak have said that Russia remains open to further discussions with OPEC.
All communication channels are open but it is difficult to predict when an agreement to cut production can be made since their statements and ambitions of flooding the oil markets with supply are meant to hinder the ability for U.S. shale producers to survive, let alone thrive.
The ensuing oil price crash has already forced U.S. oil firms to cut their budgets. Want to see one of the biggest victims look none other than at Apache Corporation (APA) among others.
So it is looking like this time Russia’s strategy is working, unlike how it backfired when they last pulled this stunt in 2014, when the Russians and Saudis flooded markets in the hopes of ruiing U.S. oil only to see Shale companies lower their cost of producting by making their technology more efficient and able to pump even more oil, especially after prices would eventually rebound.
This is the main justification why Russia has utilzed oil as a geopolitical weapon but time will tell how well their plan worked this time around. U.S. companies are accellerating their wind energy investments as we speak in a world where fossil fuel cars are steadily approaching the year they are banned in most major countries.
Today’s announcement that Germany will jump on the stimulus bandwagon has contributed to oil prices finally being able to bounce after they failed to do so after the Federal Reserve’s announcement of $1.5 trillion being added to markets within 48 hours of their press release.
In short, the great U.S. shale decline has already begun (unlike in 2014) so that may give some incentive for the Russians to allow oil prices to rebound at least a little so that they stop losing 9-figures daily.
We are still, after all, facing a rising COVID-19 threat in North America, Europe, and the MIddle East, which was the original reason OPEC+ and 10 other nations origininally agreed to a production cut of 1.5 million barrels per day as long as Russia had agreed to participate.
REPOS:
On March 12, 2020, $500 Billion in one-month repos as well as $500 Billion in three-month repos were provided. In addtion to this, another $500 Billion in three-month repos will be added the following day.
Anybody taking short positions in such an environment is doing the opposite extreme of catching falling knives as they face this bazuka of stimulus counter-fire.
Then, $500 Billion repo operations will continue every week this month to add more one and three-month repos to the total as well as continuing to offer at least $175 billion in daily overnight repos and at least $45 billion in two-week term repo operations twice per week over this same period.
Venezuela has stepped up to the plate to play mediator between Russia and OPEC and are already in discussions about the current oil price collapse. These talks alone are enough to give a boost to the price of oil today in addtion to Germany’s stimulus plans.
It is possible we could see a larger bounce today (and even Monday) if we have slow announcements about the virus over the weekend but that could be like collecting nickels in front of a bulldozer. Oil prices could get some spark over the weekend due to Iraq fighting.