Saudi Arabia Can't Endure $30 Oil For Long

[ronwagn + 6,290]

https://seekingalpha.com/article/4333579-contrary-to-assertions-saudi-arabia-cant-endure-30_00-oil-for-long

Contrary To Assertions, Saudi Arabia Can't Endure $30.00 Oil For Long

[ronwagn + 6,290]

I could see a military government in the Saudi future but have no good information on the actual situation internally. I imagine the military is very well coddled and closely watched. There is probably a large secret service also. 

[surrept33 + 609]

It looks like they will likely borrow to cover deficits (increase their debt/GDP), which they are in prime position (at least, they are in no danger of having any sort of debt or current account crisis) to do:

https://fred.stlouisfed.org/series/GGGDTASAA188N

https://fred.stlouisfed.org/series/TRESEGSAM194N#0

The currency peg is probably more interesting, imho.

From:
https://www.ft.com/content/efc8455c-6ac2-11ea-800d-da70cff6e4d3

 

Quote

 

Saudi Arabia is ready to double its debt levels as its grapples with plummeting oil prices and the impact of coronavirus, but the kingdom will not tap into its reserves or liquidate assets, the finance minister said.

Speaking after Riyadh unveiled a $32bn emergency support package for businesses, Mohammed al-Jadaan said the kingdom had raised its debt ceiling from 30 per cent of gross domestic product to 50 per cent.

“The kingdom has the economic and fiscal ability to confront the crisis. We have the flexibility to lower non-essential expenditure and the ability to borrow,” Mr Jadaan said. “We don’t expect [borrowing] to exceed 50 per cent until 2022 and this year we don’t expect borrowing to exceed 100bn riyals [$26.6bn] and it could be less.”

Mr Jadaan said the kingdom had “ample liquidity locally at banks and pension funds looking for investment opportunities, and will invest in government sukuk [Islamic bonds] as needed”. He added that Riyadh would go to the international market “only when demand is strong and the cost is reasonable”. The government had previously projected that its debt would reach about 26 per cent of gross domestic product by the year end. The kingdom has about $500bn in foreign reserves but analysts say the riyal-dollar peg could come under pressure if they were rapidly depleted.

“A substantial increase of debt/GDP from the low 20s to 50 per cent could create considerable long term financial stability issues especially if debt requirements rise as oil revenues fall,” said John Sfakianakis, a Gulf expert at the University of Cambridge.

Riyadh has implemented strict measures to combat the coronavirus outbreak, including suspending international and domestic flights, bus and taxi travel; closing malls, halting religious pilgrimages to Mecca and Medina and urging private sector companies to ensure their staff work from home. At the same time, the kingdom is being hit by the plunge in crude prices, which has been exacerbated by an oil price war between Saudi Arabia and Russia.

The dispute erupted after Moscow rejected a plea from Riyadh to co-ordinate cuts to crude output to support falling prices as the coronavirus has wreaked havoc on the global economy. Saudi Arabia, the world’s top oil exporter, responded by saying it would flood the market with crude at massive discounts. Oil prices hit a 17-year low this week. The kingdom’s economy is dependent on oil revenues, with government spending the main driver of economic activity.

Riyadh said this week that the government would slash its budget expenditure by 5 per cent, or about $13.3bn, this year. Mr Jadaan said the cuts would come from areas such as entertainment and tourism, all sectors that are vital to Crown Prince Mohammed bin Salman’s plans to reduce the kingdom’s addiction to oil.

The finance minister said public sector employees would run up fewer expenses as they remain home to limit the risk of being exposed to Covid-19. The government would consider further cuts to spending as the situation evolves over the coming weeks, he added, but insisted that it would continue to pay contractors.

After the last oil slump in 2014-15, the government halted payments to contractors, owing them tens of billions of dollars. As businesses struggled, the economy slipped into recession in 2017 from which it has struggled to recover. “Some budget appropriations will be reviewed and reallocated to the sectors most in need in the current situation, including allocating additional funds to the health sector as needed,” Mr Jadaan said. “An emergency budget was also introduced to cover any costs that may arise during the development of this global crisis.”

He said he expected the budget deficit to widen to 9 per cent compared with the previously projected 6.4 per cent. Under the measures announced on Friday, the minister will have the authority to approve lending and other forms of financing to companies as well as exemption from payment of fees and returns on loans granted until the end of 2020.

The decision comes hours after King Salman delivered a rare televised address in which he said the kingdom was facing a “difficult phase” as it confronts the disease. The kingdom has confirmed 344 infections and no deaths from Covid-19. About 16,000 people have been tested so far and eight cases have fully recovered, the health ministry said.

 

 

[wrs + 893]

I stated in another thread that my low for royalties in 2016 which was the low from the 2014 drop was $26/bbl in January and $23/bbl in February.  In March it was $32 and after that it was over $40.  I believe that KSA can't handle those low prices again for any longer if that.  I also don't think that without CV they could have forced them this low with a price war.  Once we are past CV prices will jump back to $40 quickly.

I should also say that there is still strong oil demand because traffic in the US is lower but not zero by any means.  It's just not jam packed so that you can't move.  I think that there are a lot of trips still being made.  We usually fill up once per week on the RR but we have only used 1/2 a tank this week so by my estimate, we are down 50%.  I expect that's likely for a lot of automobile drivers but trucking has probably increased and then delivery drivers have increased as well.

So far the storage numbers have not reflected the slowdown or lockdown.

We are in the process of agreeing to allow our independent to shut in our 5 wells as long as prices are below $35.

Edited March 28, 2020 by wrs

[wrs + 893]

KSA can pump all they want but it won't have anywhere to be dumped.  Oil companies not looking to buy it. Sono one to buy their excess oil, surprise, surprise, surprise.  What did that fool MBS think, people that were stuffed to the gills would want his stuff anyway?

https://www.hydrocarbonprocessing.com/news/2020/03/shell-other-oil-companies-seek-less-saudi-crude-in-april-due-to-weaker-demand

Several European and Nordic oil refiners are taking less crude from Saudi Arabia in April, industry sources said, suggesting a lack of demand for the extra supplies the country has offered as it seeks to boost market share.

Edited March 28, 2020 by wrs

[Gerry Maddoux + 3,627]

1 hour ago, wrs said:

We are in the process of agreeing to allow our independent to shut in our 5 wells as long as prices are below $35.

What are the odds on bringing them back with reasonable production? 

Man, this breaks my heart--didn't have to happen. Someone has to growl at MbS. 

[Gerry Maddoux + 3,627]

It would be grand if the workforce in oil and gas could be kept intact, perhaps by everyone taking a 25% cut in pay until this is over. 

This crazy bastard MbS wants this to play out with complete and utter destruction of the shale play. Instead of doing something radical, we are playing right to his hand. 

This is insanity! Further, it is almost unpatriotic. 

[wrs + 893]

24 minutes ago, Gerry Maddoux said:

What are the odds on bringing them back with reasonable production? 

Man, this breaks my heart--didn't have to happen. Someone has to growl at MbS. 

They are going to be cycled on regularly to keep everything fresh.  It's like driving the car once per week to keep the battery charged.  The wells will be fine according to him.  They don't plan to have them shut in for long.  A lot of my wells have been shut in for a month from time to time during frac jobs and at one point when the gas processing plant was down.  Never longer than a month though, this might take a couple or three months to get through.  

What he will do is pump for a few hours into his tank batteries on the pads.  There is several days storage in those and they can be dumped into the pipelines if needed.  This actually has nothing to do with MBS, it has to do with reduced demand and refinery runs here in the US.  There is no significant oversupply of KSA oil here in the US at the current time.  

[Gerry Maddoux + 3,627]

^

Good explanation. Thanks for your time.

Stay safe.

[El Nikko + 2,145]

1 hour ago, Gerry Maddoux said:

It would be grand if the workforce in oil and gas could be kept intact, perhaps by everyone taking a 25% cut in pay until this is over. 

This crazy bastard MbS wants this to play out with complete and utter destruction of the shale play. Instead of doing something radical, we are playing right to his hand. 

This is insanity! Further, it is almost unpatriotic. 

Everyone is being laid off from what I've seen

[El Nikko + 2,145]

Missiles being intercepted over Riyadh (Saudi Capital).

[0R0 + 6,251]

From Yemen?

[El Nikko + 2,145]

3 minutes ago, 0R0 said:

From Yemen?

Most likely yes. It happens a lot more frequenty than people probably realise.

It's a little hard for me to have any sympathy at the moment and wish one would land on their oil storage tanks

[0R0 + 6,251]

38 minutes ago, El Nikko said:

Most likely yes. It happens a lot more frequenty than people probably realise.

It's a little hard for me to have any sympathy at the moment and wish one would land on their oil storage tanks

Most of the storage is underground. 

Their Kabuki about the price war with Russia is not that big a deal in context of the devastation from the quarantine. It is only 2 mob/d added, vs. 10-12 and probably peak 20 mob/d deficit in consumption. Even when it was only China, it was 4-6 mob/d deficit. 

[El Nikko + 2,145]

14 minutes ago, 0R0 said:

Most of the storage is underground. 

Their Kabuki about the price war with Russia is not that big a deal in context of the devastation from the quarantine. It is only 2 mob/d added, vs. 10-12 and probably peak 20 mob/d deficit in consumption. Even when it was only China, it was 4-6 mob/d deficit. 

Yes I know I was just being a little facetious sorry, humour is all I have left and that's running out quickly.

 

[cbrasher1 + 272]

5 hours ago, Gerry Maddoux said:

It would be grand if the workforce in oil and gas could be kept intact, perhaps by everyone taking a 25% cut in pay until this is over. 

This crazy bastard MbS wants this to play out with complete and utter destruction of the shale play. Instead of doing something radical, we are playing right to his hand. 

This is insanity! Further, it is almost unpatriotic. 

we are not staying intact, propetro laid off 300+, oxy is supposed to shut down april 15, we will be finished with this 4 well pad wed. or thurs. and that will probably be it for me, so all the anti-shalers can be happy all of us are being laid off

[J.mo + 165]

5 hours ago, Gerry Maddoux said:

It would be grand if the workforce in oil and gas could be kept intact, perhaps by everyone taking a 25% cut in pay until this is over. 

This crazy bastard MbS wants this to play out with complete and utter destruction of the shale play. Instead of doing something radical, we are playing right to his hand. 

This is insanity! Further, it is almost unpatriotic. 

I think his cousin bought the gas station across from mine 🤣😔

They think a lot alike. 

Edited March 28, 2020 by J.mo

[JoMack + 547]

Since Saudi Arabia owns the largest refinery in the U.S. (Motiva) will they cut refinery capacity?  Salman has a taste "again" for the death of U.S. shale producers.  He'll destroy his economy to kill the U.S. market, and Russia will skip along for the ride.  His dream of diversifying his economy is about to die, along with his place in SA and the world.  Salman's a little boy having a temper tantrum and there are no adults in the room to stop him, including the U.S.  

[El Nikko + 2,145]

3 hours ago, cbrasher1 said:

we are not staying intact, propetro laid off 300+, oxy is supposed to shut down april 15, we will be finished with this 4 well pad wed. or thurs. and that will probably be it for me, so all the anti-shalers can be happy all of us are being laid off

Sorry to hear that, we're in the same situation 3 out of 4 clients dropped their rigs and the other one probably will soon. We've been running on fumes since last year and we're consultants so never got any benefits or salary etc.

Best wishes

Edited March 29, 2020 by El Nikko

[ronwagn + 6,290]

3 hours ago, J.mo said:

I think his cousin bought the gas station across from mine 🤣😔

They think a lot alike. 

It sucks to be a prince in Saudi Arabia right now. At least compared to a few decades ago. 😢

[J.mo + 165]

17 minutes ago, ronwagn said:

It sucks to be a prince in Saudi Arabia right now. At least compared to a few decades ago. 😢

His cousin apparently is under the notion that if they pump copious amounts of gasoline at a loss, somehow they will eventually prosper lol

It's now become a game of which of the 9 locations within our area can lose the most money for the longest period of time. Surely hes been on the phone with uncle mbs

Edited March 29, 2020 by J.mo

[Douglas Buckland + 6,308]

9 hours ago, Gerry Maddoux said:

It would be grand if the workforce in oil and gas could be kept intact, perhaps by everyone taking a 25% cut in pay until this is over. 

This crazy bastard MbS wants this to play out with complete and utter destruction of the shale play. Instead of doing something radical, we are playing right to his hand. 

This is insanity! Further, it is almost unpatriotic. 

Well, I’ve done my part! I’ve taken 100% cut in pay for 5 years!

[wrs + 893]

10 hours ago, J.mo said:

His cousin apparently is under the notion that if they pump copious amounts of gasoline at a loss, somehow they will eventually prosper lol

It's now become a game of which of the 9 locations within our area can lose the most money for the longest period of time. Surely hes been on the phone with uncle mbs

I remember when I was a kid that they used to have price wars on gasoline, it would be 19 cents per gallon.  It's been mostly the opposite since 73.  You are definitely experiencing the effect of lowered demand and massive oversupply.

Edited March 29, 2020 by wrs

[John Foote + 1,135]

On 3/27/2020 at 10:32 PM, ronwagn said:

I could see a military government in the Saudi future but have no good information on the actual situation internally. I imagine the military is very well coddled and closely watched. There is probably a large secret service also. 

The House of Saud intentionally has kept the military weak, despite the spend that should make them one of the top militaries in the world. They know in every country around them a strong military eventually means coup. They don't let officers from the same tribe get aligned in the chain of command for example, except their own tribe. Explaining Saudi command structures is probably impossible if you haven't been there.

The Palace Guards are rather elite, but hey designed to protect the key Sauds, not from external invasion. And there are elite troops who aren't Saudi there.