Thứ Tư, Tháng Sáu 19, 2024
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Oil crash: why Saudi Arabia has started a global crude price war (Part II)

[Reading level: C1 – Advanced]

Oil crash: why Saudi Arabia has started a global crude price war (Part I)

What will happen to the US shale industry? – Điều gì sẽ xảy ra với ngành dầu đá phiến Mỹ?

The price crash came at a difficult time for US shale. While production has soared over the past decade, leapfrogging that of Russia and Saudi Arabia, the industry has burnt through borrowed cash, alienating investors.


That has left it vulnerable to a drop in prices. The huge oil price fall since the start of the year has thrown any remaining expansion plans into doubt.


The hit to production, however, may be muted. Many of the small independent producers that make up most of the US shale sector have hedged their output at higher prices. Supply is unlikely to fall immediately.


“In our view, US shale production will not decrease fast enough to vindicate the Russian views on curbing it,” said Ayham Kamel, head of Eurasia Group’s Middle East and North Africa practice.


But many shale producers could struggle to secure new financing to roll over their existing debts. Many junk bonds — those rated as below investment grade — issued by energy companies are traded in distressed territory.


For President Donald Trump the price crash had posed a conundrum. Lower oil prices are an important part of his pitch to voters, frequently calling on OPEC to bring them down. But a prolonged price fall could spell economic trouble for energy-producing states such as Texas and North Dakota.


Will prices keep falling? – Liệu giá có tiếp tục giảm?

Hopes for an oil price recovery in the short-term have been pinned on the coronavirus outbreak being contained faster than expected.


Traders have warned that global oil demand in 2020 could contract for the first time since the financial crisis more than a decade ago. Oil consumption could be at least 1-2 per cent lower this year than what analysts had expected at the beginning of the year, with demand taking a hit from restrictions on air and road travel.


But with the possibility of the coronavirus developing into a global pandemic, crude’s short-term prospects look bleak.


Much depends on how aggressively Saudi Arabia will raise production. It has more spare capacity than any other country, so it can boost output quickly and potentially add more than 1m b/d in the coming months. It can also pull oil out of storage to increase exports.


Russia’s ability to boost its output is probably more constrained. Lower prices could jeopardise President Vladimir Putin’s longer-term promises to invest in areas such as infrastructure and social spending.


Saudi Arabia may have hoped that the enormity of the price fall would force Russia to return to the negotiating table, but that seems unlikely.


“This new Saudi approach will only harden Russia’s position,” said Amrita Sen, chief oil analyst at Energy Aspects.


If very low prices persist, other oil producers will eventually be forced to scale back expansion plans or their output could drop owing to a lack of investment. But that could take a long time and oil demand growth was already forecast to slow in the second half of the decade. Betting on a quick price recovery looks premature.


What does it mean for big oil? – Điều này có ý nghĩa thế nào với các ông lớn dầu mỏ?

After oil prices crashed in 2014 the likes of Royal Dutch Shell, BP and ExxonMobil retrenched.


They cut costs aggressively, sold off assets and streamlined their operations to stay profitable at lower oil prices and protect their business from market slides.


But while they have become more efficient, generating more cash when prices averaged around $65 a barrel over the past two years than when they traded at $100, they face different pressures.


Companies have been desperate to maintain dividends and payouts to shareholders unsettled by predictions oil demand could peak in the next decade. At the same time they need to reduce debt and look to new energy sources such as renewables, fearing a long-term shift away from fossil fuels.


With oil at less than $40 a barrel, many investors doubt this is possible. Share prices will probably come under pressure in the coming days.


“Highly leveraged companies will be most impacted by the decline in crude prices,” said Bernstein analyst Neil Beveridge.






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