Monday, May 2, 2016

Oil: As Russia and Saudi Arabia Fight For China's Market, Price Is No Object (and Tony Blair's sweet deal)

As a side note, the Saudis have hired former British Prime Minister Tony Blair for a pretty nice deal.
As I tell the young people, if you want to make real money go into politics.
From Forbes, May 1:

Saudi Russia Fight For China Market Make Oil Price A Sham
Oil closing in on $50 per barrel has little to do with supply. Sure, stocks have dwindled somewhat in the U.S. and China is slowing down but what about the fact that three of the world’s biggest oil producers are in a pumping war to capture market share in China and Europe?

Russia seems to have discovered China about a year or two ago. It’s building new pipelines. It’s signing deals between state owned enterprises. Oil is flowing. The Saudis are getting nervous as Russia eats into its China market. They’re shipping even more crude to China and some say they are doing it below market prices, taking a loss just to keep Aramco in China’s good graces.

With Brent crude settling at $48 on Friday, oil is close to hitting every Russian investment banker’s forecast — $50. There is very little upside left. The Russians and Saudis are still in pump and dump mode. More supply is coming.

According to Reuters, Saudi’s Aramco recently sold 730,000 barrels of crude to an independent Chinese refinery company called Shandong Chambroad Petrochemicals, one of about 20 independent refineries in China. What’s interesting about that sale is that it is apparently Aramco’s first spot sale to an independent. The company typically sells its crude through contracts of one year or longer, and under an Official Selling Price (OSP), rather than in spot market trades. But because Russia is making Aramco nervous, it’s offloading its crude at the spot market rate, only it’s not really the spot market rate because they are selling it at a discount to the Dubai benchmark, traders told Reuters. The 730,000-barrel cargo will be shipped to China in June from Aramco’s storage in Okinawa, Japan at below-market rate.

In other words, this oil price is a complete sham.

Then there is Iran. Iran was one of the reasons why oil prices were falling to the $30s only a few months ago. And they are only just getting started in the market. Iran’s government said it will increase oil production to pre-embargo levels eventually. Even though Iran claims to support the measures to strengthen oil price — as in reducing output, namely in Russia and Saudi Arabia — it’s state run oil companies would also like a piece of the action in China and Europe and a stronger oil price is not in Saudi’s interest. How do you keep oil prices deflated? You sell dollars and buy oil futures regardless of the fundamentals....MORE
The Daily Mail had the Blair deal April 29:

Revealed: How Tony Blair pressed the flesh with Chinese leadership on behalf of Saudi oil firm (in return for £41,000 a month and 2% of any deals done) 

If this keeps up Tony is going to pass Al Gore in net worth.

We have more on Mr. Blair's ventures, use the search blog box if interested.