Igor Sechin Is An Idiot. But You Knew That.

The very informative RBN Energy blog notes “Look What You Made Me Do – Permian Crude Producers Waste No Time In Ramping Up Production“:

Crude oil supply news comes in from all angles these days, bombarding the market daily with fresh information on producers’ efforts to ramp their volumes back up now that the global economic recovery is cautiously under way. Crude demand is rising, storage hasn’t burst at the seams yet, and prices have come a long, long way in just a few weeks. Permian exploration and production companies, having avoided a fleeting, longshot chance that the state of Texas might regulate West Texas oil production, are responding to higher crude oil prices as free-market participants should. The taps are quickly being turned back on, unleashing pent-up crude and associated gas volumes that, you could say, were under a sort of quarantine of their own for a while. Today, we provide an update on the status of curtailments in the Permian Basin.

The story mentions “the taps.” US shale regions, Permian in particular, are as close to something that can be turned on and off like a tap as anything in the history of the oil business.

You will recall that Igor Sechin’s brain flash in responding to the Covid-caused demand crash was to spurn Saudi importuning to extend output cuts, which spurred the steamed Saudis to increase output, thereby turning a hard fall in prices into a bona fide crash. A crash that hurt Russian producers generally, and Rosneft specifically, extremely hard.

The reasoning for Sechin’s strategy was that US shale producers had been the main beneficiary of previous output cuts, and he wanted to drive them out of business. Predatory pricing, in other words.

But as the RBN post indicates, this strategy, like most predatory pricing strategies, doesn’t work if the target can rope-a-dope and recover when you attempt to raise prices. That’s exactly what’s happening.

Yes, some companies have gone bankrupt–but bankruptcy is different than destruction. (Igor might not know this. Seriously.) And yes, the industry is facing more stringent financing conditions–but if prices rise these will ease too, and drilling activity will resume.

In other words, Sechin failed to realize that not only is predatory pricing almost always a futile strategy, it is particularly futile when unconventional US oil production is concerned. The Saudis found this out in 2014-2015, but Igor either wasn’t paying attention, or didn’t learn the lesson.

Predation doesn’t pay. This is hardly a new insight, or one not demonstrated by repeated experiences–including experience involving Igor’s intended prey.

Sechin’s predatory endeavors work when they involve exploiting the Russian legal system. In the marketplace, not so much. But we all knew that Igor is basically a thug, and not all that bright.