Posted on 08/24/2015 10:38:24 AM PDT by thackney
Douglas-Westwood, an energy business strategy, research and commercial due diligence services provider, commented in its latest edition of DW Monday that low global crude prices have hit Saudi Arabia hard. With a considerable budget deficit, Saudi has been forced to begin borrowing from capital markets – $4 billion in July. The kingdom is highly reliant on oil – accounting for more than 90 percent of budget revenues. Cuts have not been made to capital expenditure and Saudi has engaged in an expensive conflict within Yemen. Consequently, the decision to ride out lower prices has put a huge strain on finances – the IMF (International Monetary Fund) estimates $50 oil will lead to a deficit of ~$140 billion (20 percent of GDP) this year. Plugging holes in the budget with bond issues is the clearest sign yet that the kingdom is feeling the pinch, the question is, how long can it continue?
At least for the time being, there seems to be room for more lending, with plans to raise $27 billion by year end. Debt levels have been dramatically reduced since the late 1990s when borrowing reached 100 percent of GDP (prior to July’s bond issue, debt was 1.6 percent of GDP). At present, liquidity does not seem to be a problem with local banks easily absorbing bond issues. However, further borrowing into 2016 and beyond could prove problematic. Predicted rises in global interest rates over the coming years may make borrowing unattractive, forcing further withdrawals from the country’s foreign reserves. If current oil price trends continue, these reserves could fall to $200 billion by 2018 – 70 percent less than pre-crash levels.
Where does this leave the country? Maintenance of oil output has secured market share and proved devastating for US onshore drilling. However, with a “bathtub” shaped recovery a very real possibility, Riyadh may be forced to make a number of difficult decisions regarding domestic subsidies and expenditure in order to reduce a potentially crippling budget deficit.
Start selling Lambo’s.
Maybe they can sell sand.
If you catch yourself feeing sorry for the Saudis, just think of all the billions they ripped out of the wallets of American at the gas pumps until our great oil and gas men brought shale technology to the market, having to fight our stupid government all the way. Example #1: the Keystone Pipeline that cost tens of millions and sits unfinished, thanks to Obama, Hillary and the Democrats in Congress.
Keystone XL will cost $5~8 billions not tens of millions.
A big problem for Saudi Arabia—in fact the Middle East in general—is that given the political instability of the region, countries are getting increasingly reluctant to buy crude oil from this part of the world. One wrong move and there could be a supply cutoff with some very serious consequences.
Low prices haven’t “hit” Saudia Arabia hard. Saudi Atabia in part engineered low prices for its own reasons and expects tp profit thereby. Arabs keeping prices very low in concert with our own Sultan raising the price of fracking with punitive and economically absurd regulations is aimed, at least in part, at damaging the American oil industry. So long as the government doesn’t totally control the oilcos it will primarily serve to make them develop cheaper methods.
Here is what I hope their decisions come down to when the petrodollars dry up:
“Honey, do you want me to cook your supper over sheep dung or camel dung tonight?” “Camel dung, Allah be praised!”
Sand is actually a very valuable commodity (for construction). But it has to be the right kind of sand. I don’t know if the Saudis have the right kind, but if they do, they’ve won another commodity lottery.
http://www.wired.co.uk/magazine/archive/2015/07/features/the-sand-and-the-fury
Middle East oil exports are not down.
maybe they can pound sand
I know about Mexican cement
For now. But when you have ISIS and Iran and Saudi Arabia not liking each other—it won’t take much to cause supply issues from the Middle East.
The good news is that China is becoming the ME’s best customer.
The country with gangster business practices and 1.4b expendable people to enforce them.
I don’t think the next 10 years will be a good one for the sheiks.
It’s the wrong sand. In the 80’s the Saudis needed to import sand when they first started their infrastructure projects. This was revealed by Adam Smith’s book, Paper Money (the PBS Adam Smith, not the old economist).
The Saudis are playing a very dangerous game.
What if outsiders decide to NOT lend them the money? Then all bets are off.
They have made few friends lately with their attempt to flood the market. Besides putting a LOT of blue collar workers in the U.S. on the unemployment line, they’ve pretty much killed off Venezuela (not that we are crying for the Chavezistas but the real population is getting killed) and are hurting Russia too.
Even a blind squirrel finds an acorn every now and then and our inept Administration might finally have had enough with them (think the Iran deal was solely about weapons?). Favoring the Shiite version of Islam means that ISIS will start to take a look at their long-term benefactors, the Wahabbis, and guess what might happen?
A well-placed terrorist attack on the Saudi port of Ras Tanura or Ju’Aymah, or both, might well be in the planning stage and this Administration would probably look the other way. They’ve wanted alternatives to be competitive and lessen carbon fuels so it’s a 2 for 1 for them. It would also greatly enhance America’s oil production, which they could collect taxes on.
If Saudi Arabia blows up would you rather own Gold or U.S. domestic oil supplies? I would want to own the oil.
Maybe paying for all those mosques around the world and financing world jihad the last 40 years wasn’t their best financial move.
Read Fitch’s Downgrade Of Saudi Arabia’s Outlook To Negative From Stable
http://oilpro.com/post/17811/breaking-read-fitch-downgrade-saudi-arabia-outlook-to-negative-st
8/22/2015
Fitch Ratings, a global leader in credit ratings, commentary and research, announced Friday that it has downgraded Saudi Arabia’s outlook to negative from stable, as low oil prices impact the global economic standing of the Royal Kingdom.
Interesting analysis. Been buying Big Oil for the past several months. Historically, one of the greatest boom/bust industries in the world.
Buy low, sell high.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.