The Saudis Have a High-Stakes Plan to Win the Global Oil War
bloomberg.com
bloomberg.com
It is estimated that below 50$/barrel Saudi Arabia is basically pushing wealth out of their country. (Balance of payment in negative, it is right?.)
And below 80$/barrel they are running the country at a deficit.
They are now selling to 30$/barrel.
What is the strategy here? Push all "high-tech" producers out of the market and shut up the price again? How long can they last? And how much it will cost?
It’s a temporary measure for sure but obviously they felt it necessary,
So are they fighting a war with North Dakota?
Overall this is good for the US and the frackers equipment is still there, if price goes up they will come back, as they have done before.
> Russia of money so they can’t effectuate greater sphere of influence in the Middle East through Syria/Iran
Why are you referencing Iran? Iran and Russia while not enemies are hardly friends.
Saudi Arabia may see civil unrest soon as the house of Saud need all the money they can to spend on social welfare to stay in power.
There could be investment inertia and reluctance. After all, it's possible that the oil producer companies play the "price war" again.
Also, it most probably means that AT CURRENT PRODUCTION VOLUMES, ie. artificially low, they would need x USD per barrels. With more production, whatever that figure was, it will now be lower.
But, the list does match the OP title "The Saudis ..." ... hehe ...
Some of those real estate projects look private to me.
Yeah, for all we know they could have loaded up on CDS on O&G plays and stand to offset any losses just by triggering default clauses on the frackers.
[0] https://www.sec.gov/spotlight/fixed-income-advisory-committe...
If the total single-name CDS market is $10t and $1t of that is in oil and gas firms...it doesn't seem out of the question you could get a $30b position. Not that I really believe this is what's going on.
Welcome to post-peak oil pricing dynamics.
No...if balance of payment is negative, that means they are pushing money out of the country. Presumably there is a corresponding flow of goods inward, so the "wealth" does not change as such.
The imported goods may of course be consumed (e.g. Swiss chocolate, movies), or put to productive use (e.g. a lathe, education), or just stored (e.g. gold).
You are assuming that the saudis didn't hedge. Being the "first mover" in this case, they would have had ample time to hedge against any drop in oil prices. Of course when they decide to cut supply and increase oil prices, they could bet on oil futures and make a lot of money beyond the selling of oil itself.
> What is the strategy here? Push all "high-tech" producers out of the market and shut up the price again? How long can they last? And how much it will cost?
Putting frackers out of business is that same old nonsense financial "news" has pushed the last 10 years. If someone at bloomberg actually knew what they were talking about, especially about the saudis and their oil plans, they wouldn't be slaving away at bloomberg. They would trade oil/commodities and retire in a day. A journalist at bloomberg knows about as much about the saudis plans as a journalist at espn knew about brady's plan during free agency. They know nothing. All they do is spew conjecture for clicks.
Oil is a geopolitical tool. It's an election year. Low gas prices make voters happy. Someone likes the saudis and the saudis like that someone. Also, low oil prices hurt venezuela and iran more than anyone else and will cause the suffering of many people. 2+2=5. Your guess is good as any from bloomberg.
Killing fracking industry is really stupid to even think of.
Oil is still their golden goose - their special “10x” or “unicorn” status sauce. If the forecast for long-term global oil demand is losing steam in light of desires to shift away from fossil fuels, then perhaps sooner is the best time to sell those assets to accumulate wealth to save and invest in other areas to grow more wealth (ex. Vision Fund).
IMO - the price war is a short game to fund pivots into different long games - and as we all know, starting out with wealth to fund that is a nice situation to have.
They are not selling at a loss, but they are not making enough to run their country (that would take prices of ca US$80/bbl at the current rate).
So without further measures to run the country differently, that effectively means they are losing money and not 'building wealth', right?
Imagine it's a bunch of small restaurants. The Saudi place is owned by a large family and is the biggest, leanest place running the highest profit but this Russian crew is edging in with a place across the street. Both sets of owners have deep pockets and can keep their place running for a while. Then the US is the fancy food cart in the parking lot down the road that costs more per plate and has less capacity but is right next to the office buildings so gets the most attention at lunch.
The Saudis are still covering all costs and making money but the owners have other big expenses that are draining their wallets. The drain is faster than what the restaurant can earn but they would be worse off if it shut down for a few months.
The Russians have muscled in and though not as lean are keeping up and still covering costs (though it's a lot harder to see the cash flow, it's sketchy).
Then the food cart is running on really low margins and has no backing, it's an independent place, but it is running profitable thanks to the lunch rush. If it had to shut down it wouldn't be a huge loss each month in fixed costs like rent as the trailer can be stored.
The Saudis and Russians want the food cart to go out of business asap so the lunch customers have to come to them and bump their profits so they have to stay open and but up big lunch deals, even if a virus is going around that slows down the whole industry. Hopefully they can weather the drop in margins until the food cart is no longer making money and gets put in storage (where it will take a while to hire staff and bring back up to speed if it ever makes it back out).
Then, it's an isolated price war between the Saudi and Russian owned places until they recognize a duopoly and mutually leave prices high while still pulling in the lunch crowd as they are the only options or tying to undermine the other but at least the food cart is gone and the office workers are all reliant on them for lunch.
He personally stole $100 Billion from his extended family and other Saudis.
https://www.nytimes.com/2018/03/11/world/middleeast/saudi-ar...
Saudi Aramco is only $101 Billion or half the "required" market cap of $200 Billion MSB needs to fund Saudi Arabia.
He is a deadman walking but so it Saudi Arabia.
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a came"
From what I read, it's going to be more like ten years from now. That because in a another two or three years, battery prices will be low enough that ev sticker prices will match ice ones, and that plus public policies will lead to ev sales skyrocketing and ice sales plunging.
Saudi Arabia knows the big transition is coming, and is working as fast as it can go get its economy out of oil. I don't see how it is going to be able to do this fast enough to avoid financial disaster.
MBS seems to behave quite randomly. Maybe that's logical: being predictable is dangerous. But that's the only explanation that fits here I think: he'll burn 1tn usd because no one would expect that!
Has anyone got a better logic to explain this? Does it suit Saudi to weaken other OPEC members?
It's like saying the prussians enagaged in Catholic meditative sessions.
In addition to its original definition as "what the Eastern Roman Empire morphed into", it also means: "excessively convoluted" "highly complex, intricate, and devious". These other definitions unsurprisingly are based on what English language speakers thought of the Byzantines..
Oh, and the original definition should be simply "born in Byzantium", now Istambul.