4 ms·

Do the Saudis have enough cash on tap to out last the big firms? I have to wonder if they're willing to play chicken for much longer.

simonh 11y ago
What are they going to do? Reduce production? They'd have to slash it to the bone to materially affect oil prices right now and the benefits of any rise would be realized by the other producers. Their reduced sales would offset any price rise. OPEC just doesn't control enough production capacity to dictate to the market any more. All the producers have become so dependent on oil revenue their response to falling prices has been to increase production as much as possible. They can't afford to cut production and thus cut their revenues without massively exacerbating the damage to their economies.
- norea-armozel 11y ago
  Do you think this is part of a larger plan to get as much cash before they switch over to some other industry? I know they've been working on solar and other renewables, but are they investing in any firms outside of Saudi Arabia in that regard? I mean building a few solar plants is not much compared to say owning a specific share of a solar panel producer or its equivalent.
  - ambicapter 11y ago
    How are they going to 'switch over to some other industry'? They can't just turn on the scientist brigade the way you turn on an oil well.
    - norea-armozel 11y ago
      That's why I'm asking. Are they planning ahead or just playing financial chicken?
      - simonh 11y ago
        They've all been sinking money into sovereign wealth funds, and Dubai has been spending big on expanding it's airlines, promoting its airport as a global hub and developing a tourist industry. They're attempting to diversify their economies but whether or not any of that turns out to be sustainable without massive subsidies from oil profits is dubious.
crdoconnor 11y ago
They've got about 5 years of cash left. They can play chicken for a while yet. They're better capitalized than almost every oil producer in America for sure. Even once prices go back up again the memory of all of the bankruptcies is still going to linger on and drive up the cost of capital. I doubt as many investors going to be willing to go all in on a second round of chicken with the Saudis.

simonh 11y ago

What are they going to do? Reduce production? They'd have to slash it to the bone to materially affect oil prices right now and the benefits of any rise would be realized by the other producers. Their reduced sales would offset any price rise. OPEC just doesn't control enough production capacity to dictate to the market any more. All the producers have become so dependent on oil revenue their response to falling prices has been to increase production as much as possible. They can't afford to cut production and thus cut their revenues without massively exacerbating the damage to their economies.

norea-armozel 11y ago
Do you think this is part of a larger plan to get as much cash before they switch over to some other industry? I know they've been working on solar and other renewables, but are they investing in any firms outside of Saudi Arabia in that regard? I mean building a few solar plants is not much compared to say owning a specific share of a solar panel producer or its equivalent.
- ambicapter 11y ago
  How are they going to 'switch over to some other industry'? They can't just turn on the scientist brigade the way you turn on an oil well.
  - norea-armozel 11y ago
    That's why I'm asking. Are they planning ahead or just playing financial chicken?
    - simonh 11y ago
      They've all been sinking money into sovereign wealth funds, and Dubai has been spending big on expanding it's airlines, promoting its airport as a global hub and developing a tourist industry. They're attempting to diversify their economies but whether or not any of that turns out to be sustainable without massive subsidies from oil profits is dubious.

crdoconnor 11y ago

They've got about 5 years of cash left. They can play chicken for a while yet. They're better capitalized than almost every oil producer in America for sure. Even once prices go back up again the memory of all of the bankruptcies is still going to linger on and drive up the cost of capital. I doubt as many investors going to be willing to go all in on a second round of chicken with the Saudis.