Oil below $ 60 and Canada sold for less than $ 20, here are the reasons for the biggest collapse since 2008



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Moving from more than 86 dollars to less than 58 dollars a barrel in less than two months is something that happened in such a short time only in 2008 in the oil market. Yet crude prices have been able to lose a third of their value in recent weeks, falling below $ 60 for Brent and under $ 50 for the American Wti. The excess supply is hitting prices again for the second time in 4 years, although early this fall she was speculating on their return next to $ 100. This is exactly the opposite, so much so that OPEC sounded the alarm in mid-November and decided, albeit informally, to reduce production per day by 1 to 1.4 million barrels per day. Saudi Arabia take about half the burden. Even these voices have not relieved the black gold which, even in recent hours, has fallen to its lowest level in more than 13 months, pushing the increase in inventories to the highest levels of the US , but at about 80 million barrels less Historic highs were reached during the first months of 2017. In addition, Riad announced its intention to reduce its offer, after having brought in November to 11.3 Millions of barrels a day, its highest level ever, provided that others do the same. part.

That's why oil can collapse without a break from the Fed on US rates

Who else? OPEC partners, including Libya, which had already been exempted from the reduction two years ago, have also been involved in asking for relief from the burden. . But the other major producer to whom the Saudis require an effort is Russia, second in the world after daily extractions after the United States, has incredibly risen to the top spot in recent months. And President Vladimir Putin, who publicly stated a month ago that the 70 dollars were appropriate, now announcing in Moscow that the barrel of 60 dollars would be "perfectly satisfactory" for his country, while opening to a collaboration with the oil cartel, as it has been in recent years. Putin also congratulated Prince Mohammed bin Salman (MbS) for his demonstrated ability, as well as the rest of the organization, to stabilize the global market.

Interview with the three largest producers

Russia has no urgency to restore the prices, because, thanks to the weakness of the ruble and the flexibility of exchange, it can still ripen thanks to the export of a barrel of higher revenues in local currency than when the Brent was over $ 100. If the Russians do not cut their offer, the Saudis will never agree to do the dirty work, losing market share in Asia and finding themselves in the sights of the Trump administration, which explicitly asks them not to not accept and drop the prices? On these doubts, there is a background noise of the last hours, intended to leave no room for maneuver for a sustainable recovery until the G20 this weekend in Argentina, where will be held interesting meetings face-to-face changes in cuts: that between Putin and Prince MbS on one side, the one between Donald Trump and MbS of the other (unofficial, according to statements by the secretary to Security, John Bolton) and perhaps also between Trump and Putin. These are the three men who have in their hands the future of crude oil in the world.

Oil crisis costs hundreds of billions at OPEC

The US president gave up on pursuing riad on the Khashoggi affair, the Saudi journalist killed at the kingdom's consulate in Istanbul by a commando near the crown. The badbadination has provoked the indignation of the international community, but the White House has not put the hands in the pulp, asking in exchange openly for the deflation of oil prices, for the benefit of US consumers and thanks to which the Federal Reserve would take a break on US rates. The Saudis can not ignore the demands of such a powerful ally, even if they will probably be forced to cut the offer at the OPEC meeting in Vienna on December 6, without which they risk causing a further collapse of the oil market. Although their public company Aramco can extract crude by covering costs at prices above $ 10, the raw material still finances 70% of Riad's budget, which would require $ 75 to keep the public accounts in balance.

Canada sells oil at below cost

And if we are amazed by the return of the barrel to a minimum for more than a year, we must know that there are some that, for months, have drawn wells at much lower prices. Canada currently sells its crude at about $ 18 per barrel, which is a discount of more than $ 30 compared to WTI, the benchmark for the US market. And in July, the discount had even reached 50 dollars. Of course, this has not always been the case. The disadvantage of Western Canadian Select (WCS) is generally around $ 15, but it exploded this year for a fundamental reason: bottlenecks caused by the limited capacity of pipelines carrying crude oil to Midwest refineries, "Increased domestic production, which now stands at 4.59 million barrels a day, three quarters of which is in the province of Alberta alone.

In practice, Canadian companies are in the habit of selling barrels at a reduced price and are therefore forced to take into account transportation costs so that the product can circulate in their main market, namely America. which accounts for 70% of their exports. However, with the bottlenecks of these months, this gap has widened to unsustainable levels, considering that the extraction of WCS costs on average $ 55 per barrel, about three times the price at which it is sold today, so that in recent hours the Canadian rating agency Dbrs has threatened to restrict its judgment on companies active in the sector if the problem of low prices should not be resolved as soon as possible. In fact, at current prices, companies sell oil at less than cost price for nearly $ 40 per barrel, which has resulted in heavy losses. The fact that pipelines are no longer sufficient to transport crude oil pushes them to focus primarily on rail transportation, which costs more than an average of $ 7 to $ 8 per barrel, which is about $ 12 to $ 20. . In addition, the boom in shale In the United States, US demand for WCS has been flattened, while the Asian outlet can not even compensate for it remotely, given the geographic distance between the production market and the retail market. .

Canada is the world's fifth largest oil producer and the third largest depository of reserves with 170 billion barrels, behind Saudi Arabia and Venezuela. The crisis of these months would therefore not concern a secondary economy for this commodity, but one of its main net exporters. Trump will be happy with the problems he is being accused of by his neighbors. He has bad relations with Prime Minister Justin Trudeau, with whom he fought vehemently at the last G7 summit in Canada, accusing him of bad faith in the face of trade tensions between the two economies. they concluded a new agreement to supplant NAFTA, after a new wording of the terms signed in 1994 was also concluded with Mexico.

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