US AGAINST THEM

So, was it really a Saudi hissy fit that led to a raft of supertankers loaded up and headed for the Gulf Coast?

If you listen to the "experts" and the pundits, you will not hear anyone speak honestly about why the West Texas Intermediate contract has tanked (and gone temporarily negative for the first time ever).

Of course, there is viral demand destruction with no end in sight.

Then, there is the "official line", which goes something like this: "The Saudis were pushing OPEC+ for big production cuts to stabilize prices against possible demand destruction, but the Russians wouldn't 'play along'. "Oh, no?" the Saudis proclaimed. "Well then, I'LL SHOW YOU!" At which point Aramco (the publicly traded Saudi national oil company) decided that they would open the taps to the fullest and would contract every available supertanker at 5x the going rate, fill them up, and send them steaming toward the U.S. Gulf Coast refineries.

Of course, the "official line" isn't worthy of repeating because it is patently false. The "spat" that is alleged between the Saudis and the Russians is pure theater to provide political cover for the horrible thing that they have done: they have driven a knife into the heart of the U.S. shale oil boom and into the U.S. financial system at a time when our sole focus is on containing a lethal viral pandemic that has curiously expanded in the U.S. far faster and wider than in any other nation.

Last year, the U.S., through pure grit, innovation and determination, took over the #1 spot in oil and gas production, in spite of having no easily accessible reserves. This achievement cannot be understated, as it played a big role in the U.S. economic resurgence on the heels of the financial crisis and "Great Recession". The Saudis and Russians have huge oil reserves, but unlike in the U.S., these reserves are easily accessible and very low cost. It is estimated that the Saudis can pull a barrel of oil out of the ground for about $12 and the Russians for about $18, compared to about $28 per barrel for the majority of U.S. producers.

What essentially happened here is pure Machiavellian strategy: the #2 and #3 producers joined forces at the cusp of the greatest energy demand destruction the world has ever seen to INCREASE PRODUCTION for the purpose of rapidly and decisively driving the #1 U.S. shale producers out of business based on the logic that at $12 and $18 they could outlast any producer at $28.

The global oil business is not a game for the faint of heart, and I recognize that. But, if you are in a fight with someone and they fall down for no fault of their own, you typically allow them to regain their footing before resuming the fisticuffs.

Of course, that would be far too gentlemanly for the Saudis or the Russians. I guess I can understand the Russian animus toward the U.S. as decades of sanctions have hurt those close to Putin deeply. But, et tu MBS? We all assumed that Saudi Arabia was an American ally. I mean, we have taken the most strident of hard lines against their sworn enemy, the Iranians. We have not put any restrictions on their arms purchases or strategic support during their (genocidal) war in Yemen. We have generally avoided conflict with Saudi Arabia and the U.S. presence in the Middle East is a bulwark that generally protects the Saudi Royal Family.

So, why did the Saudi leadership decide to take this action when it was patently obvious that dramatic supply increases would be catastrophic for U.S. producers and for the U.S. economy?

In 2007 - 2008 the U.S. convulsed as a huge number of mortgage-backed securities went tits up, leading to a severe banking crisis as most banks quickly found themselves to be severely under-capitalized. To put things in perspective, the tidal wave of defaults that are likely to result from the combination of the pandemic and the oil war could make the mortgage-back security fiasco look like an appetizer. Surely, the Russians and Saudis knew this.

What is in the process of occurring is that U.S. shale producers are shutting in as much production as they can, laying off anyone and everyone, and sitting down with their lenders to chart a path forward. Most of those lenders and going to take a bath on this, and the destruction of wealth will take decades to recover. Which means that when oil is back above $45 a barrel it is unlikely to see the same vigorous U.S. response. The U.S. #1 position is effectively finished, and this is bad for America.

Thank you very much, MBS!

P.S.

I have a theory as to why MBS wants so badly to fuck America, and it has a name: Jared Kushner.

Jared Kushner put forth such an bad faith effort toward an Israeli/Palestinian peace that the Arab world was deeply angered. The idea that the U.S. Administration would green light and rubber stamp such as ridiculous plan made all Arabs realize that the current government is not their friend or ally.