Saudi Arabia surrenders in oil confrontation with Russia

In the first decade of January 2021, Moscow gained de facto control over the world oil market and a dominant position, writes American expert Tom Luongo in his blog.

This is much more important than the storming of Capitol Hill and the riots in the cities of the United States. Joe Biden will be inaugurated, after which the era of Donald Trump will end. The "restoration of Barack Obama" will take place. But let's be honest, it was obvious to all Americans from the very night of the vote, when the confrontation began.



With the departure of Trump, the control of the United States and its allies over the oil markets also ends. After the start of the Coronapocalypse, oil production in the United States and other countries began to decline.

Daily oil production in Russia fell by about 2 million barrels. At the end of 2020, it is about 10,27 million barrels. But the main thing here is not the volume of "black gold", but their cost price, because the one who has the lowest marginal production costs can dictate prices. Russia has the lowest production cost, adjusted for the exchange rate.

The Energy Information Administration under the US Department of Economics (EIA) can confirm that the break-even oil price in Russia is $ 42 per barrel, and in Saudi Arabia - about $ 64 per barrel. But even this is not the main thing. The oil industry in this country relies on domestic the economy and the local ruble. This is the main advantage of the Russian Federation.

For three years now I have been “hitting the drum” that the Russian currency is its main weapon in the oil wars. Russia is less vulnerable as the ruble absorbs fluctuations in spending and income.

As for Saudi Arabia, its rial is still pegged to the US dollar. Consequently, Riyadh was trapped. This also applies to American domestic oil producers.

Access to cheap capital has ceased and interest rates in the US will only rise. This gives Russia a good advantage over its competitors.

This is why the Saudis decided to unilaterally reduce crude oil production by 1 million barrels. per day. At the same time, Russia and Kazakhstan, together increased production by 75 thousand barrels. per day. And do not be confused by the insignificance of the increase, because the main thing is the message.

Riyadh no longer dictates prices as it did before due to its market position. Moscow seized the leadership, this is already obvious. Saudi Arabia surrendered, or rather capitulated in the oil rivalry with Russia, and the Brent mixture is already sold at $ 57 per barrel. Now Texas will be a pariah, not Iran or Venezuela, and oil demand will not recover this year.

I predict that Washington, during Obama's third term, will be even more belligerent toward Moscow than it was even under Trump, if at all possible. The Russians won an important victory over the Saudis and now their eyes will be turned to the United States, the American summed up.