Looks like Saudi regime is in big trouble. They won't be able to balance their budget with oil prices so low and they won't be able to make payments to thousands of their princes.
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.
I'm an Iranian who moved to the U.S. only a few years ago.
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.
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?
Though Saudi has been aware of its dependancy upon oil and beena primary driver in much investment, though when much of that investment has been in other companies - then for them it is a double hit.
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.
I have always believed in half-jest/half-seriousness that the big mistake the US made in the first Gulf war was to attack Saddam instead of sending him a TomTom GPS with directions to Riyadh from Kuwait. Imagine, no 9/11, no ISIS.
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.
I think the moment anyone decides on a violent regime change... it's a roll of the dice.
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.
Can the Saudi government survive a reduction in services? Their economy is largely built around the distribution of oil sale proceeds, I’m worried that cutting benefits might destabilize that regime.
Regimes like this often underestimate their own stability. There are tons of useless princes and government workers that are not really in a position to revolt if they get less money.
Unless there is a serious rift in the top level elites, they can survive.
> The collapse in crude prices and the government’s drawdown of foreign reserves is putting more pressure on the Saudi riyal. Still, prices for 12-month dollar-riyal forward contracts are well short of their all-time high reached in 2016.
> 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.
The image caption used in this article, and in many similar pieces, is honestly somewhat scary:
> 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.
Oil stocks are very different from oil futures (USO). The advert/spam video isn't really part of the article, either, but it makes clear that it is revering to companies like Chevron ($CVX), etc; not USO.
(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.)
How is investing in oil majors or low-leveraged midstream a bad idea?
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.
Maybe not as it's a supply and demand market, supply outstrips demand so more costly extraction shuts down (shale being one of them), you then see price rise as less supply and always some demand as they always balance out and then, you see other sources viable to extract - rinse repeat.
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.
Many of these oil countries and companies are lacking in vision. They could survive and even thrive in a post-fossil fuel world if they would invest now and see oil as not just fossil fuel, but a means of storage and transport.
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.
[+] [-] Jerry2|6 years ago|reply
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...
[+] [-] emilsedgh|6 years ago|reply
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.
[+] [-] Havoc|6 years ago|reply
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?
[+] [-] pcurve|6 years ago|reply
https://data.imf.org/regular.aspx?key=60214246
[+] [-] Zenst|6 years ago|reply
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.
[+] [-] m3kw9|6 years ago|reply
[+] [-] eruci|6 years ago|reply
[+] [-] TempHNAcc|6 years ago|reply
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.
[+] [-] JumpCrisscross|6 years ago|reply
Much of that revenue is FX. That increases its value, riyal for riyal, to the fixed-rate currency Kingdom.
[+] [-] haltingproblem|6 years ago|reply
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.
[+] [-] duxup|6 years ago|reply
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.
[+] [-] ashtonkem|6 years ago|reply
[+] [-] dan-robertson|6 years ago|reply
[+] [-] nickik|6 years ago|reply
Unless there is a serious rift in the top level elites, they can survive.
[+] [-] gaukes|6 years ago|reply
I’m sure they’ll survive though. Their wealth is in the trillions.
[+] [-] grouseway|6 years ago|reply
[+] [-] 101404|6 years ago|reply
[+] [-] aazaa|6 years ago|reply
> 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...
[+] [-] Etheryte|6 years ago|reply
> 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...
[+] [-] loeg|6 years ago|reply
(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.)
[+] [-] echelon|6 years ago|reply
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.
[+] [-] neonate|6 years ago|reply
[+] [-] Bang2Bay|6 years ago|reply
[+] [-] pengaru|6 years ago|reply
Is garden variety hedging and diversification really all that noteworthy?
[+] [-] unreal37|6 years ago|reply
[+] [-] Zenst|6 years ago|reply
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.
[+] [-] Havoc|6 years ago|reply
[+] [-] rdxm|6 years ago|reply
[deleted]
[+] [-] bit_logic|6 years ago|reply
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.
[+] [-] bagacrap|6 years ago|reply