After the oil market experienced one of its biggest one-day falls in history on Monday, is there anything still worth warning energy investors about?
The discouraging answer, for those who have watched their portfolios plunge dramatically lower, is yes.
The decision by Saudi Arabia and Russia to start an oil price war promises a lot of pain for both sides, a huge amount of collateral damage, and no assurance that a clear winner will emerge.
By launching it at a time when the coronavirus outbreak has slashed oil demand, the two sides have guaranteed that this battle for share will be over a bigger slice of a shrinking market.
There is a slim chance that Saudi Arabia’s aggressive opening salvo — offering customers huge discounts while opening the taps — pushes Russia back to the negotiating table as oil prices fall. Perhaps cutting output is preferable after all?
But if this really is the strategy of Mohammed bin Salman, the kingdom’s crown prince and de facto ruler, and his half-brother, energy minister Prince Abdulaziz bin Salman, the two men may want to think again.
Pitted against the two princes are the most powerful figures in Russia’s energy industry.
Vladimir Putin, the president, is familiar to most people. The other is Igor Sechin, his long-term ally and head of Rosneft, the country’s oil champion.
If you wanted to know what sort of personalities were involved in negotiations leading up to Monday’s rout, you could do worse than consider Mr Sechin, a figure once described as the Darth Vader of the Russian oil industry: a powerful number two with a reputation for ruthlessness. The Rosneft chief, like Mr Putin, was forged in the dark days of the cold war. He started his career during Russia’s involvement in civil conflicts in Angola and Mozambique. Like the man he followed to Moscow from the mayor’s office of St Petersburg, Mr Sechin saw the collapse of the Soviet Union as a disaster that became an opportunity.
Having arrived at the top of Russia’s biggest oil company in 2012, Mr Sechin always opposed co-operation with Opec or the strategy of cutting output. He believed it kept prices high enough to let rivals in the US shale sector keep expanding.
After Washington hit Russia with sanctions — including penalties for Rosneft’s trading arm over its dealings with Venezuela — Mr Sechin may have noticed that Wall Street was finally beginning to tire of supporting the shale industry’s near profit-free expansion. The old cold warrior has spied an opportunity to strike back.
The initial results, in fact, may have been pleasing for Mr Sechin. Some US shale companies saw their shares drop by more than a third on Monday.
It is possible that the price war will be over soon. But do not count on it. Russia appears more likely to dig in for a long fight.
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March 10, 2020 at 11:05AM
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Russia is digging in for a long battle in the oil price war - Financial Times
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