Saudi stocks slump as minister warns of ‘painful’ measures ahead
bloomberg.com
bloomberg.com
I did some searching and found few interesting data points:
>For dozens of oil producers, the plunge in oil prices is devastating. No major oil producer can balance its budget at prices below $40; according to the International Monetary Fund, with the exception of Qatar, every country in the Middle East requires at least $60, with Algeria at $157 and Iran at a whopping $390. The average Brent price of oil over the past month has been a hair above $20. [1]
and this from 2019:
>Top oil exporter Saudi Arabia would need oil priced at $80-$85 a barrel to balance its budget this year, an International Monetary Fund official said. [2]
Given that WTI is at $19 and Arab Light at $21, there's going to be lots of internal changes in ME in the coming years. Probably a few wars too.
[1] https://www.bloomberg.com/opinion/articles/2020-04-29/covid-...
[2] https://www.reuters.com/article/us-saudi-economy-imf/saudi-a...
Unsure how advanced along their migration away from oil money is over alternatives, but will be further along than other oil dependant countries.
Though this will help focus many more minds away from oil, so that is not a bad thing at the end of all this.
Something most people here in the U.S. don't understand is that countries like Iran have a far different threshold of pain.
Iran, as a result of sanctions had already entered starvation-levels of economic collapse. There are people who are sleeping in open graves. Yet, the regime is not backing down in any way. It hasn't change course at all.
While you were in Iran, were you involved in what the US called the Arab Spring? Was it really spread by Twitter? Did it seem like the regime might topple?
Iran had green movement [1] which happened earlier than Arab Spring. Peaceful protesters rushed to the streets after a fraudulent election and hundreds were murdered by the regime.
The other candidates have been under home arrest ever since.
Iran has a theocratic regime, and gets a lot of oil revenue, but is a fundamentally diversified and surprisingly self-sufficient economy. They have factories, an educated population, and they produce a fair number of things other than oil. Agriculture exists (if not self-sufficient).
Saudi Arabia is oil rich. The princes are oil rich. The wealthy are oil rich. Normal people are oil rich. It's oil, all the way down.
The country simply doesn't produce anything else. Most of the citizens simply don't work -- at all. There's no plan B.
Iran can fall back to "hard times" and a pre-oil-wealth economy. SA can't. There's nothing else there except sand and starvation. They aren't going to "grin and bear it".
From https://saudiembassy.net/agriculture-water -:
Today, Saudi Arabia exports wheat, dates, dairy products, eggs, fish, poultry, fruits, vegetables and flowers to markets around the world. Dates, once a staple of the Saudi diet, are now mainly grown for global humanitarian aid.
...
As a result, there has been a phenomenal growth in the production of all basic foods. Saudi Arabia is now completely self-sufficient in a number of foodstuffs, including meat, milk and eggs.
From https://saudiembassy.net/energy -:
In addition, with the discovery of deposits of precious and semi-precious metals, Saudi Arabia expects to become a major exporter of minerals in the coming decades.
...
Exploration projects over the past two decades have unearthed extensive deposits of precious and industrial minerals throughout the country. These include not only gold and silver, but also copper, tin, tungsten, nickel, chrome, zinc, lead, phosphates, iron ore, bauxite, potassium ore and even table salt.
Data is from 2017. Single largest non-petro export being aluminum, at 0.51%.
Probably desalination plants run on Oil.
I am sure they can keep doing this but this is not a natural extension of any of their strengths. Their labor is over priced and mostly imported south asians, overburdened by heavy bureaucracy and lacking in the inputs of production.
Would you open a dairy farm in Namibia? If they really have to tighten their belts they will have to cut down on all these "extra-curricular" economic activities.
" Most of the citizens simply don't work -- at all"
Where in the world you got this??
Not sure how you're gonna fix this with wars given that every oil producer is underwater. Even if you capture someone else's oilfields...then what? Produce oil there at a loss too?
Example: https://www.theguardian.com/lifeandstyle/2011/jul/17/bread-f...
The Arab Spring in Syria led to rebellions that spilled into Turkey and Iraq (Kurds, ISIS, Russian and US intervention, etc.).
> Even if you capture someone else's oilfields...then what? Produce oil there at a loss too?
They're not after oil fields per se, but changes in control, money, and other resources. If oil is so cheap that the price is negative then it means you can fly your attack craft without worrying about fuel costs...
The Hajj and the Umrah add around $12 billion per year to KSA's GDP (7% of the GDP).
The closing of the Haramayn (the Mosques of Makkah and Madina) crippled internal tourism which amounts to lots of money.
Much of that revenue is FX. That increases its value, riyal for riyal, to the fixed-rate currency Kingdom.
The Saudi regime is one of the worst things to happen in the history of the world to Muslims and the rest of the world. Middle Eastern culture threw up people like Averroes (father or modern rationalism), Avicenna and Ibn Khaldun. I speculate but pretty sure that the Middle East produce less scientific literature than Taiwan. Saudi Regime driven Wahabism has turned Islam back by centuries aspiring to a regressive state of the 6th century with about 20% of the population radicalized. Women recently got the right to drive in SA, we can just imagine the state of other rights. Wahabism other effect is on radicalization of other regimes like Turkey and Iran. The Turks were relatively progressive people but to compete with the Saudis for global leadership of all Muslims, Ergodan has pushed further and further towards conservative political Islam. The Islamic population of Indonesia and Malyasia was once moderate, tolerant and dynamic. Now after 20 years of Wahabi indoctrination they are bombing churches.
For all of Elon's bizarre views, repugnant and quixotic, his contribution to the electrification of transport alone warrants a Nobel Peace Prize (and any other prize we can give him).
The Al-Sauds are probably too entrenched in the political and economic fabric of the world to go anywhere for a couple of decades. The US establishment has enough of their skin in its own game to shield them and also in fear of what comes next. Oil Prices permanently collapsing to a sub $20 level will not end the Saudi regime but reduce its appetite for extra-curricular activities.
People rightfully take issue with US involvement in some regime changes... but it seems many of those people have their own plans that seem no more likely to result in a positive outcome.
The second gulf war led to ISIS and the rise of the Quds force and the general destruction of society in Iraq/Syria. ISIS is an an existential danger to the world as asymmetrical warfare can have high-impact outcomes beyond our imagination. In comparison, Saddam's Bath party was secular socialists.
Libyan intervention led to the disintegration of a stable and despotic regime but today there are slave markets in Libya!
Our best hope is that the Saudi regime shrivels and withers away but undoing 50 years of Wahabism will take hundreds of years.
It wouldn’t even be that surprising for a sophisticated investor to have some funds which lose money while the market is booming (eg even the best performing short selling funds lose money) as they may be hedging against the market no longer booming.
To my ears they are actually in a very dangerous place in terms of runway for maintaining a civilization in the desert during catastrophic climate change.
Who would want to go there and do business with them? They are led by murderous despots with missiles pointed at them from multiple directions (Iran/Syria/Israel/Yemen). A country best known for financing the 9/11 attacks. Good grief.
We may go back to importing one the short term, but losing access to Saudi crude is now a 100% solvable problem, because all we need to do is ramp up fracking again.
Maybe Congress needs to bail out oil producers during a glut, but that’s a lot cheaper than Saudi having to run most of their economy on credit.
After prices rise the oil will still be there.
US foreign policy is shaped around making sure the whole region remains in conflict. That allows for more weapons sales, cheaper oil due to infighting, and excuses to intervene and have the military there.
I don't think that everyone has fully grasped how America being energy independent changes the game.
It's about controlling the access to oil of friends and foes. Can't be the global hegemon without controlling that access.
And it's also about keeping oil being billed in US dollars. That's why the US can print as much money as they want (well, almost).
With an ever increasing population and shrinking pot of gold, I’m thinking Syria Part II once the current regime in Washington DC is removed.
For neoliberals, like neocons, Terrorism is a feature - not a problem. Neither have had a seat at the table for the last 4 years, but they’re not going to let this opportunity go to waste.
And we’re going to pay for it.
Imports remain around 7 million barrels of oil per day, down from a high of 9. What's shot up is exports. Oil imports into the US haven't changed much.
The US continues to "need" to import just as much oil as they always have from the KSA. [2] Even Canada imports from the KSA, for a lot of reasons [3].
Keep in mind, too, the largest supply of oil in the world is under Venezuela, with 18% of the global supply.
[1] https://en.wikipedia.org/wiki/Petroleum_in_the_United_States
[2] https://en.wikipedia.org/wiki/Petroleum_in_the_United_States...
[3] https://nationalpost.com/news/canada/why-has-canada-spent-bi...
America continues to import KSA oil mostly because California won’t frack, which could be changed if necessary.
As far as continuing to import, I believe that’s a factor of oil and refinery quality. America has some amazing refineries capable of eating garbage quality oil, including diluted tar. Since fracking produces high quality oil, my suspicion is that it’s cheaper to export that to older refineries, and import lower quality crude to refine domestically. But I’m no expert here.
Also, good quality oil can be used to dilute thicker oils to the point where refineries can process them. It’s my understanding that this is how you process Venezuelan oil for example. It wouldn’t surprise me to find out that American oil is being exported to blend other stuff before refining.
I’m sure they’ll survive though. Their wealth is in the trillions.
At these prices, SA can’t just turn oil into dollars (well, not many dollars anyway).
[0] - https://www.middleeastmonitor.com/20200430-saudi-foreign-res...
Edit: So too will be Saudi Arabia; they waited too long to take meaningful action to diversify away from oil revenue. Norway is the model for how to avoid the resource curse.
Also notable is that Syria is a "failed state" largely because of the oil money pumped into the opposition by those same Gulf States.
Unless there is a serious rift in the top level elites, they can survive.
That said, the system of keeping the royal family fat and happy with lavish stipends is entirely by design.
There are clearly more people getting payed, then strictly needed. I'm not saying it will be smooth, but they also all understand what happens to them if the Muslim Brotherhood or even AQ takes over Saudi Arabia. The US understand that also.
> A currency devaluation would be too costly for Saudi Arabia and the better option is to adapt to the oil shock through fiscal changes, according to Goldman Sachs Group Inc.
Like many countries in the region, the Saudi currency is currently "pegged" to the US dollar. So the devaluation being discussed means abandoning the exchange rate that's been in place since 1986.
https://en.wikipedia.org/wiki/Saudi_riyal#Fixed_exchange_rat...
> Why Now Is the Time to Be Buying Big Oil Stocks
This is dangerous advice given most investors, never mind casual investors, don't understand how the oil market works. Last I checked, there is no convenient way to invest in the spot price of oil eventually going up. People who buy "oil ETFs" like USO hoping to cash out if the price rises later don't understand how the underlying asset works, and end up losing a lot of money [1].
Using captions like that is simply irresponsible and should be avoided.
[1] https://www.cnbc.com/2020/04/21/retail-investors-who-believe...
(It's bad advice for investors anyway; if you're naive enough to take advice from a random website, you should just buy and hold low-cost whole-market index funds.)
Not only do many of these companies have a good balance sheet, but they're 4-6X undervalued if you're long on the investment.
Furthermore, these companies are at price points where the dividend yield is 30-60%. You could put a percentage of your yearly salary in and retire on passive income when the market returns to normal.
Having a passive income stream is the ultimate way to pursue building a startup.
Oil will come back.
$OXY earnings is coming up this week and I suspect that dividend is going to get slaughtered -- after all, they elected to pay Warren Buffet's special dividend in stock in lieu of cash. If the op is super-long term, I assume they're suggesting that the stock could return, and with it, the dividend, which would be "30%" of your original investment.
Is garden variety hedging and diversification really all that noteworthy?
SO to recover to the same level of usage - I kinda hope it doesn't and we see a gradual reduction once things back to the new normal. But shall see. Problem is as it gets cheaper due to surplus - other uses become viable like generating electric as cheaper per KW than buying from the grid or other sources. Things like that, so the nuances of all this are all down to how we define normal after this lockdown. Either way, the industry will carry on, just price accordingly.
The key weakness of renewables (wind and solar) is a mismatch between production and use. It's intermittent, you can't control when the wind blows or sun shines. The solution many think of is giant batteries like those produced by Tesla.
But there are technologies that can take a CO2 source+water+electricity and create synthetic oil. The Middle East is a giant desert, perfect for covering with solar. Texas is known to be a great place for wind. Imagine if these economies went all in on solar/wind + synthetic oil generation. They already have the full oil infrastructure in place to process/refine/transport throughout the world. Just switch the source from the ground (fossil fuel) to solar/wind+synthetic oil generation. If they're smart, they would push hard for carbon tax at the same time. Because solar/wind+synthetic oil is carbon neutral (take CO2 from the air, burn later during combustion). It would put out of business their competitors still stuck on old fossil sources.