US shale producers bullish ahead of OPEC+ meeting
In the runup to the OPEC+ March meeting, one of America’s largest shale oil producers has claimed that shale oil is no longer a threat to OPEC. It was a bullish and uncanny statement given that the coronavirus disease (COVID-19) pandemic has ruined any market competitiveness amid an uncertain oil demand recovery. Diminishing competition from shale oil barrels was justified on the basis of strong upcoming demand and shale’s low growth rates, meaning OPEC producers need not worry about competing for market share with the US shale oil industry.
The statement is a direct message encouraging OPEC to ease output cuts, amid the declining influence of shale oil on the market. However, shale oil was never a threat to OPEC producers. Conversely, it was needed to meet global oil supply needs before the COVID-19 outbreak impacted oil demand. More interestingly, however, this bullish signal could be more damaging to the shale oil industry if OPEC+ fails to read the market and act with caution causing prices to take a steep downward movement.
Current oil prices are hovering around the $60 per barrel mark, which should help shale oil to revive. If OPEC+ starts to ease output cuts before oil demand recovers to pre-pandemic levels, this will push oil prices down, which will be much more damaging to shale oil producers than OPEC producers.
It is important to understand what is going on in the shale producers’ ecosystem. Their latest move is akin to using a pistol to kill mosquito and raises big concerns about the survival of the shale industry.
Shale oil was never a threat to OPEC, if anything, shale producers always benefited from OPEC’s effective market management, including in April when the US asked Saudi Arabia to help stabilize the global oil market. It is obvious that American oil output will not return to pre-pandemic levels soon. One year ago, US crude oil production historically peaked at 13.1 million barrels per day (bpd), while the latest production report by the US Energy Information Administration put the figure at below 10 million bpd.
Hence, a subdued shale rebound is widely expected. Even as crude prices rise, and despite the fact that shale producers have added more rigs in recent weeks, there is still uncertainty surrounding oil demand recovery.
Therefore, the huge pressures from investors to reduce debt has kept shale oil producers from rushing to complete new wells.
SAMA report revealed that 98 percent of the new mortgages were obtained through banks, while 2 percent of them through financing companies.
Five years ago, China under President Xi Jinping pledged to become a football power by 2050. But the financial collapse of the newly crowned Chinese champions raises fresh questions over that lofty goal.
Jiangsu FC on Sunday said they had “ceased operations” — just three months after winning the Chinese Super League — in a move described as “shocking” by state media. After rushing in to curry favor with Xi and the Communist Party, burnt investors are retreating again and last year 16 teams pulled out of Chinese football. More are set to follow. It is a far cry from when the Super
League broke the Asian transfer record five times in less than a year, culminating in Chelsea midfielder Oscar joining Shanghai SIPG for €60 million in January 2017. Argentine striker Carlos Tevez was lured by Shanghai Shenhua in the same transfer window on reported wages of €730,000 a week, the highest in the world.
But state-run Xinhua news agency said this week that soaring salaries and transfer fees, as clubs vied to outspend each other, had created “a bubble” that is now bursting.
Citing Chinese Football Association statistics, Xinhua said average expenditure in the 2018 season for the Super League’s 16 clubs was about 1.1 billion yuan ($170 million),
against average income of 686 million yuan.
“The CSL club expenditure is about 10 times higher than South Korea’s K League and three times higher than Japan’s J-League,” CFA president Chen Xuyuan said in December, when salary caps were announced.
Journalist Ma Dexing said that in 30 years covering Chinese football he has seen more than 200 clubs close, indicating a wider problem beyond the current crisis and the coronavirus pandemic, which delayed the Super League for months last year and forced it behind closed doors.
Tianjin Tigers, a Super League mainstay since its founding in 2004, are expected to dissolve within days and Hebei FC’s parent company is drowning in debt. “The fundamental reason is that the foundation of Chinese professional football is too weak,” Ma, who has 1.5 million followers on China’s Twitter-like Weibo platform, wrote in a column.