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I don't get it. It is estimated that below 50$/barrel Saudi Arabia is basically pushing wealth out of their country. (Balance of payment in negative, it is rig

by siscia 7y ago

I don't get it. 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?

godzillabrennus 7y ago
Bankrupt the fracking companies in America and deprive Russia of money so they can’t effectuate greater sphere of influence in the Middle East through Syria/Iran. It’s a temporary measure for sure but obviously they felt it necessary,
- nickik 7y ago
  > Bankrupt the fracking companies in America 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.
  - sunstone 7y ago
    More Texas/New Mexico than North Dakota. And the US doesn't have to stand idly by while their frackers die on the vine.
    - catawbasam 7y ago
      Yup. Time for tariffs.
      - valuearb 7y ago
        Why would the US want to turn victory into defeat?
JanSt 7y ago
It's a stupid move, because the tech and reserves won't go away. As soon as prices rise again to levels needed by Saudi Arabia the reserves will be exploited again. Probably they hope that banks give less money and hedges to shale companies, but that won't work long-term. 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.
- thendrill 7y ago
  Stupid for who?
- eunos 7y ago
  > will be exploited again There could be investment inertia and reluctance. After all, it's possible that the oil producer companies play the "price war" again.
aliswe 7y ago
FWIW, I don't like the statement "KSA needs 80USD per barrel to break even". It's too blunt, and obscures lots of variables, including their bond market, their megaprojects that aren't really being paid for (yet) as they haven't started at full scale, fluctuations of external work forces, the operations in Yemen, etc etc ... were these parameters included or not? Were they compensated for in any way? I don't know the answer to those questions, although a lot of people must do. In any case, those parameters have undisputably changed since this claim was first made. And I really doubt "the Saudis" (... all 30 million of them ...) would agree to the 80USD per barrel figure. 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.
- DyslexicAtheist 7y ago
  what kind of mega projects are they involved in outside oil? I learned that they invested 40B in the SoftBank fund. Is this what you're referring to? Where would I look or what should I read to learn more about this? thanks
  - PopeDotNinja 7y ago
    They're building a bunch of new cities: https://www.index-saudi.com/more-info/saudi-mega-projects/ https://www.index-saudi.com/more-info/saudi-mega-projects/
    - DyslexicAtheist 7y ago
      thanks for this
    - aliswe 7y ago
      Please note that these projects are not all governmentally funded and thus do not burden the state budget (affecting the x-usd-per-barrel-or-bust number) per se - Jeddah Tower is built "privately" by prince Waleed and his company if I'm not mistaken. But, the list does match the OP title "The Saudis ..." ... hehe ...
deleted 7y ago
[deleted]
xiphias2 7y ago
The liquidity crunch in the global market can be used to negotiate a better deal for Saudi Arabia. Still, it's hard to know how good it will be without knowing more details.
- cinquemb 7y ago
  > Still, it's hard to know how good it will be without knowing more details. 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.
  - dmurray 7y ago
    Is the CDS market big enough to do that? It's big, but the oil market is massive.
    - cinquemb 7y ago
      Hard for me to say, a lot stuff is traded over the counter, and one can get short exposure alot of different ways. Blackrock[0] has about $10 trillion notional for the single name cds market in 2016, estimated in 2017 that there was about ~$15,000 million avg daily volume in HY, and ~$26,000 million in IG (cash traded bonds, etfs, and cdx) and that's not considering the notional on the derivatives (swaps/options) on those. [0] https://www.sec.gov/spotlight/fixed-income-advisory-committee/blackrock-next-generation-bond-market-fimsa-011118.pdf https://www.sec.gov/spotlight/fixed-income-advisory-committe...
      - dmurray 7y ago
        By comparison, Saudi Arabia produces 12 million barrels of oil a day: if the price drops $30 they need to make $360 million per day to cover that, or $30 billion if they carried out the trade over a three-month period. 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.
balola 7y ago
There's probably never a better chance to crush competitors, now that demand is low and high-cost private wells are fragile.
- christophilus 7y ago
  This is the answer. They think they can send US shale into bankruptcy before they go bankrupt themselves.
  - look_lookatme 7y ago
    But when the cost recovers we'll be back at it again. US shale has seen booms and busts for a hundred years.
    - warlog 7y ago
      Whipsaw mkts will eventually make it impossible for credit to be extended to allow these low ROIs to operate. Welcome to post-peak oil pricing dynamics.
    - fpoling 7y ago
      Saudi Arabia oil is the cheapest in the world. They have massive oil fields. So in principle they can bankrupt anybody unless somebody can come up with a cheaper way to get oil.
      - davidf18 7y ago
        It takes several years (I can't recall how many) and $100 billion per 1 million barrel increase in production and as far as I can recall the Saudis are pumping their maximum at his moment.
  - aww_dang 7y ago
    Half expecting some form of a bailout for shale producers if it comes to that.
  - 7y ago
dntbnmpls 7y ago
> It is estimated that below 50$/barrel Saudi Arabia is basically pushing wealth out of their country. (Balance of payment in negative, it is right?.) 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.
- afroboy 7y ago
  You're the only person who brought the correct reason for the situation, Saudis are cow milk for Trump and the absolute silence of Trump is clear answer of his satisfaction on the situation. Killing fracking industry is really stupid to even think of.
D_Alex 7y ago
>pushing wealth out of their country. (Balance of payment in negative, it is right?.) 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).
eyegor 7y ago
Actually right now it's around $22. Which is uncomfortably close to the break even for most major Canadian oil extraction. It may even be below cost for some of them since the exact numbers are considered competitive secrets. Alberta's economy is built on the oil sands.

by siscia 7y ago

godzillabrennus 7y ago

Bankrupt the fracking companies in America and deprive Russia of money so they can’t effectuate greater sphere of influence in the Middle East through Syria/Iran. It’s a temporary measure for sure but obviously they felt it necessary,

nickik 7y ago
> Bankrupt the fracking companies in America 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.
- sunstone 7y ago
  More Texas/New Mexico than North Dakota. And the US doesn't have to stand idly by while their frackers die on the vine.
  - catawbasam 7y ago
    Yup. Time for tariffs.
    - valuearb 7y ago
      Why would the US want to turn victory into defeat?

JanSt 7y ago

It's a stupid move, because the tech and reserves won't go away. As soon as prices rise again to levels needed by Saudi Arabia the reserves will be exploited again. Probably they hope that banks give less money and hedges to shale companies, but that won't work long-term. 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.

thendrill 7y ago
Stupid for who?
eunos 7y ago
> will be exploited again There could be investment inertia and reluctance. After all, it's possible that the oil producer companies play the "price war" again.

aliswe 7y ago

FWIW, I don't like the statement "KSA needs 80USD per barrel to break even". It's too blunt, and obscures lots of variables, including their bond market, their megaprojects that aren't really being paid for (yet) as they haven't started at full scale, fluctuations of external work forces, the operations in Yemen, etc etc ... were these parameters included or not? Were they compensated for in any way? I don't know the answer to those questions, although a lot of people must do. In any case, those parameters have undisputably changed since this claim was first made. And I really doubt "the Saudis" (... all 30 million of them ...) would agree to the 80USD per barrel figure. 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.

DyslexicAtheist 7y ago
what kind of mega projects are they involved in outside oil? I learned that they invested 40B in the SoftBank fund. Is this what you're referring to? Where would I look or what should I read to learn more about this? thanks
- PopeDotNinja 7y ago
  They're building a bunch of new cities: https://www.index-saudi.com/more-info/saudi-mega-projects/ https://www.index-saudi.com/more-info/saudi-mega-projects/
  - DyslexicAtheist 7y ago
    thanks for this
  - aliswe 7y ago
    Please note that these projects are not all governmentally funded and thus do not burden the state budget (affecting the x-usd-per-barrel-or-bust number) per se - Jeddah Tower is built "privately" by prince Waleed and his company if I'm not mistaken. But, the list does match the OP title "The Saudis ..." ... hehe ...

deleted 7y ago

[deleted]

xiphias2 7y ago

The liquidity crunch in the global market can be used to negotiate a better deal for Saudi Arabia. Still, it's hard to know how good it will be without knowing more details.

cinquemb 7y ago
> Still, it's hard to know how good it will be without knowing more details. 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.
- dmurray 7y ago
  Is the CDS market big enough to do that? It's big, but the oil market is massive.
  - cinquemb 7y ago
    Hard for me to say, a lot stuff is traded over the counter, and one can get short exposure alot of different ways. Blackrock[0] has about $10 trillion notional for the single name cds market in 2016, estimated in 2017 that there was about ~$15,000 million avg daily volume in HY, and ~$26,000 million in IG (cash traded bonds, etfs, and cdx) and that's not considering the notional on the derivatives (swaps/options) on those. [0] https://www.sec.gov/spotlight/fixed-income-advisory-committee/blackrock-next-generation-bond-market-fimsa-011118.pdf https://www.sec.gov/spotlight/fixed-income-advisory-committe...
    - dmurray 7y ago
      By comparison, Saudi Arabia produces 12 million barrels of oil a day: if the price drops $30 they need to make $360 million per day to cover that, or $30 billion if they carried out the trade over a three-month period. 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.

balola 7y ago

There's probably never a better chance to crush competitors, now that demand is low and high-cost private wells are fragile.

christophilus 7y ago
This is the answer. They think they can send US shale into bankruptcy before they go bankrupt themselves.
- look_lookatme 7y ago
  But when the cost recovers we'll be back at it again. US shale has seen booms and busts for a hundred years.
  - warlog 7y ago
    Whipsaw mkts will eventually make it impossible for credit to be extended to allow these low ROIs to operate. Welcome to post-peak oil pricing dynamics.
  - fpoling 7y ago
    Saudi Arabia oil is the cheapest in the world. They have massive oil fields. So in principle they can bankrupt anybody unless somebody can come up with a cheaper way to get oil.
    - davidf18 7y ago
      It takes several years (I can't recall how many) and $100 billion per 1 million barrel increase in production and as far as I can recall the Saudis are pumping their maximum at his moment.
- aww_dang 7y ago
  Half expecting some form of a bailout for shale producers if it comes to that.
- 7y ago

dntbnmpls 7y ago

> 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?.) 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.

afroboy 7y ago
You're the only person who brought the correct reason for the situation, Saudis are cow milk for Trump and the absolute silence of Trump is clear answer of his satisfaction on the situation. Killing fracking industry is really stupid to even think of.

D_Alex 7y ago

>pushing wealth out of their country. (Balance of payment in negative, it is right?.) 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).

eyegor 7y ago

Actually right now it's around $22. Which is uncomfortably close to the break even for most major Canadian oil extraction. It may even be below cost for some of them since the exact numbers are considered competitive secrets. Alberta's economy is built on the oil sands.