The Saudi Arabia-Russia oil war, explained


Let me begin with a very silly rudimentary question that is like a lay up for you but to a lay person like me it's it's actually confusing so I'm watching the news today about corona virus and I was watching Maria Bartiromo show earlier when I was in the green room getting ready for America's newsroom on the news channel and much of the discussion on the panel surrounded this whole fight over oil prices and and oil and how that might affect fracking and and shale producing here in the United States and I was sort of thrown for a loop a little bit because I associated the selloff on the markets recently completely with corona virus but there's this other massive story that I just haven't had the band with to really follow or process properly can you just walk us through what's happening on that side yeah sure Saudi Arabia basically lives off its oil sector if you'll all of its government payments to its citizens that those payments go don't go to its citizens and they have a problem the Saudi Arabia got really mad Russia refused to cut its oil output by half a million barrels a day so Saudi Arabia which has tremendous supply capacity it's considered quote the central bank of oil for years or decades Saudi Arabia can easily open the spigots and it did it drove down prices sparking a global price for during week demand when much of the world is in recession so the fact that Saudi plans to now increase their oil output per day above ten million barrels that's the problem we currently pumps about nine point seven million barrels a day but the thing is it has the capacity to ramp up to to put out twelve and a half million barrels a day do you see oil prices plunging by massive double digit drops and weak but here's the flip side of that the plunge in prices we could maybe see two dollars maybe a Buck fifty a gallon right as the summer driving season starts plus it helps the jet fuel costs for US airlines battered by the corona virus problem when oil prices go down like this says that the trend of it the oil patch guide to saying this is a one trillion dollar stimulus for the world economy so there's always an offset so when we saw that when there's a shake out like that when oil prices plunge like that the shale producers in the oil patch guys are kind of on the margin they borrowed a lot of money to fund their operations that jump on high interest rate they can't make money when oil plunges like that often it said they may be forty five dollars a barrel maybe more it's a break even point for it R. U. S. producers and other producers that so you know so when they boil price plunges they don't have the cash flow to pay back from from forty five which would be into what well if it goes below that I mean we're talking now I hate I feel bad for guys in all the patch but the I'm talking to traders in the pits they're talking thirty dollars a barrel of so you know so that's painful for a sector that has stopped us from tipping into recession under the Obama administration does it get any credit much credit for that but it did to protect the food going into depression thanks to the recession forgive me reception reception during the crash but it also has made us do a political force around the world right now the biggest producers around the world prices were independent we went from being dependent to independent to a net exporter which is a huge development for for the U. S. economy but Elizabeth before we turn to corona virus one of the countries that wasn't mentioned in your answer but is at play in very much in the mix with this price war that's going on in the oil market you mentioned Russia you mention of course the U. S. you mentioned Saudi Arabia how does China factor in well it's interesting China factors big because China buys a lot of its oil from Saudi it does take up a lot from Russia but truth be told it does play a lot of Iranian oil and that is saying of course the trump administration because of sanctions against Iran US crude is also a big player for China China has always been watchful of what goes on in the Persian Gulf with the tree for mood attack so you know there is that China is China's a big fourth two given demand there in that country it's it's a powerful force since since you mention just to jump and you mentioned Iran as well my wheels are now turning in my head and I'm thinking about the corona virus disaster in Iran where they were not taking it seriously they were completely dishonest and opaque about everything and now you have a significant number of the members of their sort of fake parliament who have been infected with corona virus it is a huge huge problem with the with rates of people infected very high and of course we don't know the real numbers because it's a very secretive regime you have that problem piled on top of what was already a period of significant economic turmoil and hardship where you saw demonstrators in the streets of people being killed and imprisoned now if you put on top of that a collapse in the price of oil that is the last thing that the Iranian regime probably wants right Iran also filtered into Turkey and and into India yes you're absolutely right about what's going on on the streets of Iran I mean if they did that what I I have to stress it again I mean our oil sector is the powerful the US domestic and geopolitical force so anything that can be done to support it it's good for the country so you know do I see Russia interfering here that's the rumor mill cranking that you know we understand that you know Russia's Putin has been battling it's gonna minute metal this way be the oil market market I mean that's just a rumor we don't know that for sure we do know that Russia unlike unlike a lot of these players they've got a gigantic what's called the sovereign wealth funds like you know I'm always laughing when nor of wind you know Bernie Sanders brings up the Nordic model as can even ritualism capitalism Norway has one of the biggest sovereign wealth funds in the world built by the oil it's it's massive oil and and gas sector so Russia has the defense of advantage here they kept a hundred fifty billion dollar wealth fund to offset any slump and bolster the ruble I'm not sure that Iran has that so turning to corona virus later on the program congressman Adam Kinzinger a Republican from Illinois he's gonna be here I'm curious to ask him about the appetite among house Republicans Senate Republicans people on the hill on the right side of the aisle is there an appetite there for what the president has just been talking about the last day or so we saw a bit of a better day certainly on Wall Street today than we did yesterday fueled in part by a stimulus package that might be employed to help prop up certain businesses and help people who might be displaced or quarantine for periods of time who couldn't work out what is your assessment of what the president has suggested it's nothing official yet what do you think would be effective what don't you think would be effective in is there a political will to get that sort of thing down in your view I'd not sure they have the political will I think I yeah I just we could just cross that Steven Mnuchin is now going to meet with Nancy Pelosi this is as of early earlier in the day you know so I do I just want to see the details of it I don't know if it's going to be a two percentage point payroll tax cut that the president wants and that the short term stimulus that does put a lot of money in people's hands of you know it will impede the holiday that will last until June the payroll tax cut for Willie structure collapses and wait for it until after the election right SBA loans are they going to be interest free you know I am I'm going to get on a phone call with a lot of hospital directors tomorrow I want to understand what their needs all right in the face of the corona virus outbreak so you know we already have a one mile quarantine zone around newer shell I'm here in New York City this is north of the city I just wonder if there's any talk about what the doctors and hospitals on the front lines of this need and if those needs are going to be met I know the White House is intensifying the push for coronavirus measure of what is that Democrats appetite for the Democrats would have to sign off on any payroll tax cut how do you view the state of the economy because we just saw on Friday another monster jobs report it seems like absent this epidemic this health crisis things were continuing term steam roll right along in a really positive way to what extent could this situation coronavirus grind all of that to hold or could it be you know is there an opportunity for what was an underlying strong economy to bounce back very quickly what what what's your sense of that you know I like that guy I like these questions because I think you sense of them totally geek and nerd at heart I mean I've been a key key highlights of blood that could directly right I mean you know I'm geeky and nerdy United but study all sorts of trend lines that cover corporate accounting scandals like testified before Congress about the IRS twice I get into the footnotes of it I'm just watching data I like watching data crossing I think this economy is really strong I think it's in a powerful floating right now and while it's a powerful I was surprised Wall Street was surprised to see solid two hundred fifty three thousand jobs report last Friday that says the bid you know the numbers coming in for temporary right when you know the corona virus we knew about starting in December you know in the revisions to the prior month went up I'm looking at an S. and P. five hundred that has quadrupled over eleven years I'm looking at apple doubling within about two years time Microsoft doubling with an attack around two years time I'm looking at S. and P. five hundred and the two hundred day moving average it's holding its finding support at a trend line that sort of connecting to these other bottoms we saw in October two thousand eleven and December twenty eighteenth what do I say those those around government shutdown fight so those are sort of market crack up but when you see the S. and P. holding at that level you have to say what supporting it there's not a bear market capitulation right now I don't know if we cut the bottom yesterday for going to continue as the coronavirus progresses but I do think it will probably likely get worse before it gets better but I think we're in a solid position in terms of other countries around the world to booklet so whether this out of this is the time I think for leadership this is the time not to panic not to go off in and on any speculation you read on social media it's a time for calm and leadership in I feel pretty calm and strong right now personally that we are going to get through this for sure well if you like that sort of analysis you can have an hour of it every single night on fox business network six PM eastern time it is the evening at it with the host Elizabeth McDonald who has been my guest here on the guy Benson show Elizabeth a pleasure having you on thanks so much in such a busy and tumultuous day we appreciate

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