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Shale Game: Why Trump May Have to Scrap Nord Stream 2 Sanctions Before Moscow Agrees to Oil Cut

© AFP 2021 / Robyn BECKPump jacks are seen on the Bakken Shale Formation, near Williston, North Dakota, on September 6, 2016
Pump jacks are seen on the Bakken Shale Formation, near Williston, North Dakota, on September 6, 2016 - Sputnik International
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President Trump has expressed hope that Russia and Saudi Arabia could “make a deal” on oil production cuts soon to prevent prices from falling any further and risking the survival of the US shale industry. Moscow and Riyadh have yet to confirm whether any such talks are in the offing.

The United States may have to make substantial concessions to Russia, possibly by cancelling sanctions against the Nord Stream 2 gas pipeline, if Washington wants Moscow to agree to cut oil production, energy analyst and Sputnik contributor Maxim Rubchenko believes.

On Thursday, President Donald Trump expressed confidence that Russia and Saudi Arabia may agree to settle the ongoing dispute over oil prices in the near future, telling journalists that such a deal “would be great” for both countries, and adding that the US would be ready to join the talks if necessary, since the price war threatens “thousands and thousands of jobs.” The US oil and gas industry is known to account for about 7 percent of the US’s GDP, and to employ over 10 million Americans.

Also on Thursday, Saudi Arabia called for an urgent meeting of OPEC+ producers to try to stabilize the oil markets, less than a month after the fateful Vienna meeting where disagreements between Riyadh and Moscow on the extent of production cuts led the kingdom to ramp up production, sending prices plummeting.

Trump’s optimism led oil to enjoy a major upswing in Friday morning trading, with Brent climbing by $2.75 to $32.69 a barrel, after gaining 21 percent Thursday. WTI jumped 4.5 percent, or $1.13 on Friday to $26.45, after gaining back 24.7 percent a day earlier.

Market optimism may be premature, however, with Russian presidential spokesman Dmitry Peskov telling reporters Thursday there were no talks, “even abstract ones,” scheduled in the OPEC+ format at the moment. On Friday, Peskov announced that President Putin planned to meet with his cabinet and oil industry leaders to discuss the oil situation, but again, made no mention of any possible OPEC+ negotiations.

© Sputnik / Rosneft / Go to the photo bankA drilling rig at the oil company Rosneft's site at the Tsentralno-Olginskaya-1 well.
Shale Game: Why Trump May Have to Scrap Nord Stream 2 Sanctions Before Moscow Agrees to Oil Cut - Sputnik International
A drilling rig at the oil company Rosneft's site at the Tsentralno-Olginskaya-1 well.

Rosneft’s Target US Shale, Not Saudi Crude

Moscow’s silent treatment for the Saudis is no accident, Rubchenko believes. The problem, the analyst says, is that bilateral talks between Russia and Saudi Arabia alone have no point: “All that the Saudis have to offer is to reduce output. That means only one thing [for Russia]: ceding even greater market share. Moscow has the opposite goal – to displace US shale oil.”

As evidence, the analyst points to comments by Rosneft chief Igor Sechin, who expressed confidence Monday that “as soon as shale oil companies leave the market, prices will rebound and reach $60 per barrel.”

Accordingly, for Russia to agree to a coordinated cut in output with Saudi Arabia, Washington, not Riyadh, will have to be the party that talks to Moscow.

© REUTERS / Angus MordantA sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. Picture taken November 22, 2019
Shale Game: Why Trump May Have to Scrap Nord Stream 2 Sanctions Before Moscow Agrees to Oil Cut - Sputnik International
A sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. Picture taken November 22, 2019

US shale producers, whose breakeven price ranges from $39-$68 a barrel, have been hit hard by the month long oil price collapse, so much so that they’ve reportedly begun lobbying the Trump administration to enforce protectionist measures, including oil sanctions on Russia and Saudi Arabia, to try to shield themselves from the global oil market crash. The administration’s solution, including a decision to top up the country’s strategic oil reserve, is a temporary fix.

Trump seems to understand that the road to a rebound in prices lies through Moscow, given Monday’s phone call between the Russian and US presidents, where oil markets was one of the topics on which leaders “exchanged opinions” and agreed to further consultations at the ministerial level.

“The main question now,” Rubchenko notes, is “what Washington will offer Moscow in exchange for rescuing the US shale industry from collapse. And that process has already begun – on Wednesday, Whiting Petroleum, one of the leading oil companies operating in the massive Bakken shale oil field in North Dakota, filed for bankruptcy. The banks to which Whiting owed some $2.2 billion were offered 97 percent of its shares, which have declined in value 11 times over the past three months.”

In such circumstances, Russia can expect major concessions, “for example, the lifting of sanctions against vessels participating in the construction of Nord Stream 2,” the observer believes, pointing out that although sanctions have a five year shelf life, they can be canceled by the president at any time before then if it is determined that the pipeline does not ‘pose a threat’ to Europe’s energy security.

© Nord Stream 2 / Go to the photo bankNord Stream 2 pipeline being laid.
Shale Game: Why Trump May Have to Scrap Nord Stream 2 Sanctions Before Moscow Agrees to Oil Cut - Sputnik International
Nord Stream 2 pipeline being laid.
“Given that Russia has signed a new transit agreement with Ukraine, and that gas supply in Europe today far exceeds demand, Trump has enough formal grounds to repeal the sanctions,” Rubchenko stresses.

Nord Stream 2 AG, the company supervising the pipeline’s construction, said as recently as Wednesday that it’s not looking at any options besides completing the project as planned. “We are looking for a solution and will report on it at the appropriate time,” company representative Irina Vasilyeva said.

The completion of the $10 billion, 1,230 km pipeline stretching from Russia to Germany through the Baltic Sea was put on hold after Washington slapped sanctions on the project, prompting pipe laying contractor Allseas Group S.A. to pull out. The US introduced its sanctions on Nord Stream 2 late last year, with just 160 km of pipe left to be laid. The move prompted an angry rebuke from both Berlin and Moscow, and to assurances by Russia that the project would be completed, sanctions or no sanctions.

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