The thought started when I saw an article by Yahoo Finance pass by, it was named ‘Why Saudi Arabia May Be Forced To Start Another Oil Price War’, two thing came to mind, it is October, and the northern hemisphere is now going into Winter, it seems trivial, but 700 million Europeans and well over 50% of Americans (and also all Canadians) will need heating and oil is more often than not the essential fuel used. The second part is seen but perhaps missed, as we are given “The threat of European lockdowns is real, hitting global demand again while taking a heavy toll on the economy. Financial easing and subsidies worldwide have kept some demand in place, but the financials of major economies are bleak, which can be seen in the rising level of unemployment” what everyone forget is that in the past most of these people were in offices and shops, places of employment. During the lockdown all these people will stay at home and their houses, places that usually tends to be 5-8 degrees colder because they are at work, these houses will now need heating for all that time. In addition there are in the US over 1,050 power plants operated by oil, all these houses need power, all whilst many shopping centre needs less power, yet the need for power and heating will seem to rise, especially when the cold days come through. Even as some question “Global oil storage levels are still high, while the world is awash with oil and gas. International traders are openly questioning the current OPEC+ move to put extra oil on the market”, I am not convinced. Yes there is less fuel needed for jets, but jetful is only 2% of crude oil production, so I have been told in school (a long time ago), yet power and heating needs oil and there will be a shift, summer is gone, autumn is squarely here and we see a few hundred million places now needing power and heating most of the day, which stands against the needs of a working environment. As such the statement seen here “Saudi Arabia, supported by its main ally UAE, and Russia are both looking at a financial crash of unknown magnitude if oil markets don’t recover soon. Oil prices are currently too low to sustain the government strategy of both nations” becomes one of debate. I cannot counter it, but when we think things through, oil needs are essential during winter, and I see it, these people will not need gas for cars, so where is the tradeoff? Well, mot of these houses still need food, so the car remains used, to a lesser state. Yet heating and power will be needed to a much larger degree, so even as we can assume to some degree that there will be a lesser need, it will at best be a ‘somewhat lesser need’, in light of all this, why is there a call for a war (well, a pricing war)? The article still gives a truth, several in fact. We cannot disagree with “Without higher crude oil prices, not only is the Kingdom’s flagship Saudi Aramco suffering but most government projects too. The world’s largest oil company has already put several major new projects on hold, while at the same time reassessing investment levels of others. High-profile offshore projects” yes there will be an impact, and the impact will optionally continue into 2021, yet the larger stage is not how Saudi Arabia will do, the question becomes when the EU collapses after another lockdown, how will those government foot the bill for essential services (power and heating) when the trough (finance coffers) run dry?
So as we get to “If the threats made by Saudi Arabia’s Minister of Energy Prince Abdulaziz Bin Salman that the Kingdom has had enough of profit takers, short investors, or lack of support of members, are to be taken face value, the market should not be surprised if the OPEC leader decides again to go its own way. A more aggressive move by Riyadh towards market-share or oil prices is not at all unthinkable”, I start to wonder who the writer Cyril Widdershoven is and I see that he is linked to Verocy and that he oversees Mediterranean Energy Political Risk Consultancy. As such, I wonder if he hopes to create a pre-creationary wave, or that there is a stage which in the article is assigned to Prince Abdulaziz Bin Salman. I do not know (I honestly do not know), yet any quick or knee-jerk action required by others, tends to set a different stage in all this and when someone gives me ‘Why Saudi Arabia May Be Forced To Start Another Oil Price War’, I tend to wonder why something like that I needed. Yes from our side a lockdown is not good news, but who considered that they would be warming the house an additional 12-15 hours each day?
It is well over half a day more, as such heating is required, as well as additional power, because these people will need their TV, their computer, their radio, their console and in many houses they need need close to one of each and with an additional 12 hours a day that drives up the need for power too. So yet there is every indication that there is some level of downturn for Saudi Arabia, I am merely not convinced that it will be as bad as me predict, yet I am willing to admit that I might be wrong. So I will let you do the math on what you need in your house, and consider, will it be more or less than before and when you consider that part, consider the thousands, nay millions of additional homesteads in Europe, the US and Canada. That is what went through my mind, and overall there is an impact for Saudi Arabia, but I am not convinced that it will be as dire as some say. When someone calls for a pricing war, they tend to multiple motives, that I what history taught me, I am merely thinking things through, but as stated, I might be wrong.