Oil prices could fall further, as Saudi Arabia and Russia hunker down

Tanker rates stay high as the oil price war between Saudi Arabia and Russia shows no signs of slowing down

Oil prices will fall further before Saudi Arabia and Russia agree to call off their price war, KKR Global Institute managing director Neil Brown said Tuesday.

On a Council on Foreign Relations conference call, Brown predicted oil would continue to fall over "weeks and months" before the two sides sit back down and agree to bury the hachet.

"President [Vladimir] Putin and Mohammed bin Salman will have to be the ones to make the call on when to change policy," said Brown. "Neither of those personalities have shown a willingness to compromise quickly. And both are willing to hunker down for a price war."

In late trading Tuesday, a barrel of West Texas Intermediate was trading at $27.77 per barrel.

The price war has been a shot in the arm for tanker rates, previously languishing thanks to suppressed demand due to the coronavirus.

Since 9 March, the day after Opec+ supply cut talks broke down at the organization's monthly meeting in Vienna, the Baltic Dirty Tanker Index has nearly doubled from 778 to a high of 1518 Monday.

Tuesday, the index dipped by two points to 1516, remaining at highs not seen since late January before seasonal weakness kicked in, followed by the Covid-19 coronavirus outbreak.

The rates had Nordic American Tankers chief executive Herbjorn Hansson pen one of his occasional letters to investors, trumpeting the market as "extraordinarily strong".

"It has been indicated that one million barrels a day extra from Saudi Arabia to the Far East create demand for about 45 suezmaxes," wrote Hansson, noting the company had a recent fixture of more than $100,000.

"It is simple: Increased demand leads to more transportation work for our tankers."

Brown said it is in the interests of both Saudi Arabia and Russia to come back to the negotiating table, even if it might not happen for some time.

He said issues like domestic unrest, a bottoming out in coronavirus demand destruction or international pressure could expedite an end to the fight.

"The reality is because neither of them expected to be here, the policy plane here is being built while in flight," Brown said.

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