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Saudi stocks slump as minister warns of ‘painful’ measures ahead
- ashtonkem 6y agoCan 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.
- dan-robertson 6y agoMaybe they can use some of they money they invested in wework and such
- birdyrooster 6y agoHilarious that while the rest of the market was booming they were losing billions.
- dan-robertson 6y agoI think it would be silly to assume that their only incestments were in the vision fund. Those were surely expected to be high risk. 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.
- birdyrooster 6y agoAhh okay, I guess I would've expected to hear about the investments which are so successful that they are balancing out the VisionFund and negative oil margins. Let me know if you have any sources that show their foreign investments have been profitable enough to offset these losses. 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.
- 101404 6y agoThat's what the US troops are there for. The US needs the Saudi dictators to maintain their influence in the region.
- ashtonkem 6y agoNeeded, past tense. US foreign policy used to be shaped around our need for Saudi oil, and IMO hasn’t properly adjusted to the fact that America is energy independent again. The realpolitik question now isn’t “how can I secure Saudi oil” But rather “what’s the least I can do to reduce any risk of terrorism”.
- arcticbull 6y agoC'mon now, for years the largest source of foreign oil going into the US was from Canada. Even today, Canadian oil accounts for 40% of imports, with the KSA a distant 11% [1]. The whole energy independence as a form of security through reduced financing of questionable governments thing was a red herring, even if you're worried about the northern border. 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 https://en.wikipedia.org/wiki/Petroleum_in_the_United_States [2] https://en.wikipedia.org/wiki/Petroleum_in_the_United_States#/media/File:U.S._oil_Imports_by_Country_of_Origin.png https://en.wikipedia.org/wiki/Petroleum_in_the_United_States... [3] https://nationalpost.com/news/canada/why-has-canada-spent-billions-of-dollars-buying-saudi-arabian-oil https://nationalpost.com/news/canada/why-has-canada-spent-bi...
- ashtonkem 6y agoThe Canada thing is a good point, I always forget how much of our imports come from our peaceful neighbors. 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.
- gaukes 6y agoYa, and they were diversifying into tourism which is also bust. I’m sure they’ll survive though. Their wealth is in the trillions.
- ashtonkem 6y agoThe Saudi budget is a quarter of a trillion dollars. “Trillions” doesn’t last very long at those levels.
- arcticbull 6y agoSounds like at least 4-5 years.
- ashtonkem 6y ago+ increased borrowing costs as the deficits begin to worry investors.
- koolba 6y agoSaudis aren’t exactly known for their adherence to austerity.
- birdyrooster 6y agoThey will have to make due with BMW and Mercedes Benz.
- MR4D 6y agoForeign reserves are only about 1/2 trillion and dropped about 5% last month. They aren’t in the best position, and the longer this goes on, the more the downside accelerates. Once people think you’ll run out soon, you’re screwed. At these prices, SA can’t just turn oil into dollars (well, not many dollars anyway). [0] - https://www.middleeastmonitor.com/20200430-saudi-foreign-reserves-fall-to-lowest-record-in-20-years/ https://www.middleeastmonitor.com/20200430-saudi-foreign-res...
- grouseway 6y agoVenezuela and Syria have survived much worse with fewer resources. There will definately be enough money for the police and military.
- toomuchtodo 6y agoThose countries are not surviving. They are failed states. 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. https://en.wikipedia.org/wiki/Resource_curse https://en.wikipedia.org/wiki/Resource_curse
- grouseway 6y agoYes they are abysmal failed states but the parent said "government". The regimes in those countries are still in place and have survived. The rulers and recipients of their patronage are still in charge.
- kingofpandora 6y agoBut Syria wasn't exactly an oil-rich country. Sure they had some oil but not game changing levels like in the Gulf. Also notable is that Syria is a "failed state" largely because of the oil money pumped into the opposition by those same Gulf States.
- blaser-waffle 6y agoAnd political machinations by their neighbors (Israel, plus Lebannon pushing the Alawites north) and other interested parties, e.g. the US supporting anti-Assad militias, Russia backing Assad, etc.
- mrits 6y agoI think it's arguable that either of those countries survived.
- nickik 6y agoRegimes 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.
- 9nGQluzmnq3M 6y agoThe history of Saudi Arabia is the history of factional infighting in the Said family. MBS is not yet King and his rise & rule have ruffled a lot of feathers. That said, the system of keeping the royal family fat and happy with lavish stipends is entirely by design.
- nickik 6y agoThe history of Saudi Arabia is also one of stability and much more consensus then infighting. 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.
- rdxm 6y agoI'm reminded of a classic Sam Kinison piece..... https://youtu.be/wAgUICswZuY https://youtu.be/wAgUICswZuY
- Jerry2 6y agoLooks 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. [1] https://www.bloomberg.com/opinion/articles/2020-04-29/covid-19-oil-collapse-is-geopolitical-reset-in-disguise https://www.bloomberg.com/opinion/articles/2020-04-29/covid-... [2] https://www.reuters.com/article/us-saudi-economy-imf/saudi-arabia-would-need-oil-at-80-85-a-barrel-to-balance-budget-imf-official-idUSKCN1Q01N0 https://www.reuters.com/article/us-saudi-economy-imf/saudi-a...
- Zenst 6y agoThough 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.
- emilsedgh 6y agoI'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.
- Bang2Bay 6y agoSaudi has been investing heavily in the US stock market. At somepoint they were holding TSLA as well, despite relying on oil for their living.
- pengaru 6y ago> Saudi has been investing heavily in the US stock market. At somepoint they were holding TSLA as well, despite relying on oil for their living. Is garden variety hedging and diversification really all that noteworthy?
- blaser-waffle 6y agoIndeed. Any large holding company is going to hold some, even a lot, of US stocks and assets -- theres be where the big money is. Same holds true for the Norwegian Sovereign Wealth Fund, or the Ontario Teacher's Union Pension Plan (two other large state-related investors)
- unreal37 6y agoYes the oil industry is going to take years to recover from 2020.
- Zenst 6y agoMaybe 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.
- Havoc 6y agoAnd when it does there won't be much demand for it anyway imo
- TempHNAcc 6y agoThe other comments are talking about oil, but because of COVID-19, Hajj and Umrah are not taking place this year. 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 6y ago> The Hajj and the Umrah add around $12 billion per year to KSA's GDP Much of that revenue is FX. That increases its value, riyal for riyal, to the fixed-rate currency Kingdom.
- Etheryte 6y agoThe image caption used in this article, and in many similar pieces, is honestly somewhat scary: > Why Now Is the Time to Be Buying Big Oil Stocks This is dangerous advice given most investors, never mind casual investors, don't understand how the oil market works. Last I checked, there is no convenient way to invest in the spot price of oil eventually going up. People who buy "oil ETFs" like USO hoping to cash out if the price rises later don't understand how the underlying asset works, and end up losing a lot of money [1]. Using captions like that is simply irresponsible and should be avoided. [1] https://www.cnbc.com/2020/04/21/retail-investors-who-believed-they-were-investing-in-crude-oil-get-a-rude-awakening.html https://www.cnbc.com/2020/04/21/retail-investors-who-believe...
- loeg 6y agoOil stocks are very different from oil futures (USO). The advert/spam video isn't really part of the article, either, but it makes clear that it is revering to companies like Chevron ($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.)
- echelon 6y agoHow 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. Oil will come back.
- pmorici 6y agoI don't follow, dividend yields on the 6 oil majors range from ~5-12% as far as I can tell. It's a far cry from 30-60%. Also many oil companies especially outside of the majors are notorious from having huge debt loads.
- bit_logic 6y agoMany 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.
- bagacrap 6y agoTexas is leading the US on wind. I don't think the American energy companies plan to die out as fossil fuels lose preeminence.
- aazaa 6y ago> 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. https://en.wikipedia.org/wiki/Saudi_riyal#Fixed_exchange_rate https://en.wikipedia.org/wiki/Saudi_riyal#Fixed_exchange_rat...
- neonate 6y agohttps://archive.md/qJd9r https://archive.md/qJd9r
- haltingproblem 6y agoI 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.
- duxup 6y agoI 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.
- haltingproblem 6y agoI could not agree more. 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.