Target is Donald Trump. Yes, the crude oil crash and the war is targeted to get Trump to lose the election since major funding sources are already dead and will be dead more in the coming days. The coronavirus has killed the economic growth and now the crude will kill the key sources of election funding of Trump. The shale segment has been one of the key contributors to the GDP as well as to the funding of U.S election.
Last 4 years we have witnessed the pains of Trump and now the global leaders based on current circumstances seem to be not in favour of getting him appointed for another 4 years term. The coronavirus itself has raised a million questions about the sudden birth of the diseases and the way it has exponentially grown.
It was surprising that there is no medicine for that disease and further it has ideally slowed the pace of supply chain across the globe. Markets have reacted and are under the mode of reaction but it seems that Trump has nothing left to threaten. He threatened last year that if he is not appointed of the 2nd term stock markets and GDP will crash. The question is what is left now.
The current supply chain slowdown has already taken away the forward market growth in the 2nd quarter of this calendar year. In between China has shown to the global economy that how much strength and how important they are in the global supply chain market.
The forward market is at risk since the war of crude is nothing but to throw off the funding of Trump from shale companies. The price of remaining alive for the global crude suppliers is that Russia needs a price of about $42 to balance its budget and Saudi Arabia needs a whopping $75 a barrel and US shale companies needs of $50 a barrel to be cash-flow positive. Hence the current price will throw away many companies in the US.
Now for Saudi, they have Sovereign Wealth Funds to back them up. The current size is whopping Sovereign Wealth Fund Institute, and has put together a list of the top 10 largest wealth funds in the Arab world based on overall fund size is as follows:
1. Abu Dhabi Investment Authority, UAE – $696.66 billion
2. Kuwait Investment Authority, Kuwait – $592 billion
3. SAMA Foreign Holdings, Saudi Arabia – $505.76 billion
4. Public Investment Fund, Saudi Arabia – $320 billion
5. Qatar Investment Authority, Qatar – $320 billion
6. Investment Corporation of Dubai, UAE – $239.38 billion
7. Mubadala Investment Company, UAE – $228.93 billion
8. Libyan Investment Authority, Libya – $60 billion
9. Emirates Investment Authority, UAE – $45 billion
10. State General Reserve Fund, Oman – $22.14 billion
Russia is not going to face massive loss since its economy is dependent on the extent of 37% on crude. Whereas the US shale companies are highly in debt. The below numbers speaks about the debt to equity ratio of the oil companies of the US.
|S.No.||COMPANY||LONG-TERM DEBT/ EQUITY||INDUSTRY|
|1||Equitrans Midstream Corp.||90.20%||Oil & Gas Pipelines|
|2||Tetra Technologies Inc.||84.60%||Oilfield Services/Equipment|
|3||Apache Corp.||71.80%||Integrated Oil|
|4||Core Laboratories NV||66.10%||Oilfield Services/Equipment|
|5||Oneok Inc.||66.00%||Oil & Gas Pipelines|
|6||U.S. Silica Holdings Inc.||63.10%||Other Metals/Minerals|
|7||Archrock Inc.||63.10%||Oilfield Services/Equipment|
|8||Nabors Industries Ltd.||62.80%||Contract Drilling|
|9||Denbury Resources Inc.||60.50%||Oil & Gas Production|
|10||Gulfport Energy Corp.||59.70%||Oil & Gas Production|
|11||Consol Energy Inc||58.70%||Coal|
|12||Laredo Petroleum Inc.||58.10%||Oil & Gas Production|
|13||Halliburton Co.||57.70%||Oilfield Services/Equipment|
|14||Range Resources Corp.||57.50%||Oil & Gas Production|
|15||Williams Companies Inc.||56.70%||Oil & Gas Pipelines|
|16||Exterran Corp.||53.30%||Oilfield Services/Equipment|
|17||Occidental Petroleum Corp.||53.10%||Oil & Gas Production|
|18||Penn Virginia Corp.||51.70%||Oil & Gas Production|
Now if the war goes on for crude then these companies will have to file for bankruptcy and will head towards the creation of unemployment and more trouble for the economy. Trump will not be able to convince or do anything as he has already spoiled his image as Trade war solider. One must understand that the US President position needs to balance the bilateral trades and other activates rather creating a problem of a trade war and damaging the global GDP.
On the other hand, whatever numbers of good signs of China in terms of coronavirus is coming up raises my doubt since its PMI has dropped significantly and hence it needs to keep the momentum alive so as not to get pressure on capital.
So we should be watching now when and how the crude war is resolved since till now everyone is increasing supply despite being aware that demand is low and will remain low for the next quarter. Then the biggest question is why are the increasing the supply. Who will buy this excess supply and even one who buys will erode the demand for the next 6 months taking advantage of the current price.