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Saudi Arabia may go broke before the US oil industry buckles

Hypothetical ideas are very easy to make sir, to actually look at facts and figures tells a very different story. USA and Iran can not work together while the Israeli and Saudi influence stays in Washington. The president is trying its best to try and get the deal passed through congress and faces stiff opposition.
US policies regarding shale are very complex, with environmentalists going after them for the earthquakes etc whose frequency has increased in areas with fracking. Also even after hedging oil companies barely made profits in the last quarter, this time they will have to play with much lower prices. Just these days there is a clean energy bill the Potus is trying to garner support for, the situation is very complex.
As far as Saudi economy is concerned, they have many ways they can finance themselves and their country is nearly completing many major money draining projects and the returns will start to come now.

The bottom line remains the oil price per barrel in international markets. Any turmoil in ME that does not affect global prices will be easy to handle. The source of the oil is not that important. If US shale production goes down, Iranian oil can make it up. Or SA pumps more.

As I said before, consumers win, including Pakistan, with low energy prices.
 
The bottom line remains the oil price per barrel in international markets. Any turmoil in ME that does not affect global prices will be easy to handle. The source of the oil is not that important. If US shale production goes down, Iranian oil can make it up. Or SA pumps more.
I agree, unless we find a new industrial boom like the one which caused prices to sky rocket, there will be a levelling of prices around the 55 per dollar mark. because there are many rigs which are not even feasible at rates below these, the demand is mainly being met by the OPEC and Russian etc flooding of markets while there is no demand.
China has slowed down its growth, India is not growing in the areas which are fuel extensive, Russia and Brazil are stagnating and actually their economies are going down in terms of oil use, while Europe is adding no real extra oil demand.
As I said before, consumers win, including Pakistan, with low energy prices.
true, if they take advantage and build their economies taking advantage, not wasting it away like Pakistan is doing at the moment. 60 dollars to 46 dollars and we see a 4 rupee change of prices.
 
Even if the entire oil wealth of the Saudis is finished they wont face any issue ... They have Gold mine called Mecca and Madina ... managing the Pilgrims more efficiently alone would keep the Government Super rich ...

And dont forget Saudi Government companies like Saudi Aramco holds Billion's Dollar's of assets apart from the investment's in US and European countries ...

And another thing, population of Saudia is just 18 million thats not even half the population of Mumbai City + its suburbs ... the asset they have with them in Bond, Dollars and investments are very huge...

By Just putting a good accountant in place they can Sustain with ease for an another 3-4 decades with no earning and no taxation...
 
By Just putting a good accountant in place they can Sustain with ease for an another 3-4 decades with no earning and no taxation...

Exactly, people just don't get this simple fact....

According to the article, saudia has right now $670B in reserves. They can simply put all of it in decent funds and make ~$50B a year and keep going, no problem lol...

Saudia is just too rich to be affected by what's going on....What ever happens, they can simply buy their way out.....

And btw, saudia makes no more than a ~dozen billion dollars from mecca/medina pilgrim trade.
 
Exactly, people just don't get this simple fact....

According to the article, saudia has right now $670B in reserves. They can simply put all of it in decent funds and make ~$50B a year and keep going, no problem lol...

Saudia is just too rich to be affected by what's going on....What ever happens, they can simply buy their way out.....

And btw, saudia makes no more than a ~dozen billion dollars from mecca/medina pilgrim trade.

Not always. How did their strategy to Rent-an-Army plan work out for Yemen?
 
Not true
Saudi's are making almost same money with low oil prices because of higher output,
double the output at half the price earns the same dollars since cost of production is very low for Saudis
Agreed but dont forget that with the fall of oil prices there will be a fall in the Value of assets they hold inside Saudi...
and today most the wealth is not just paper money and gold one holds but on share market and Virtual money which are mostly based on perceptions...
 
Sooner or laters US always comes back to haunt allies and democracy is the best stick to beat them with. saudis will be no exception its not going to happen first time with US ally nor it will be last

then that will happen to iran as well as UAE, Bahrain, Qatar, Kuwait etc etc....And that's not going to happen. US policy is not to implement democracy all over the world. They work for their interests. It's not in their interest to destabilize what ever little stability is there in the middle east. And they are especially not going to hurt hard core capitalists (arabs are really pro-capitalism).
 
then that will happen to iran as well as UAE, Bahrain, Qatar, Kuwait etc etc....And that's not going to happen. US policy is not to implement democracy all over the world. They work for their interests. It's not in their interest to destabilize what ever little stability is there in the middle east. And they are especially not going to hurt hard core capitalists (arabs are really pro-capitalism).


lets see what happens and when when but one thing is sure the democracy will come back to haunt arab for sure the question is about the timing when ?
 
Not always. How did their strategy to Rent-an-Army plan work out for Yemen?

there's ups and downs in all businesses :P

it was their first time buying armies, they'll learn from it....they did okay for a first timer. :P
 
And btw, saudia makes no more than a ~dozen billion dollars from mecca/medina pilgrim trade.
Thats what I said if they manage the Pilgrims properly they can milk Billions more then they earn in Oil...
 
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lets see what happens and when when but one thing is sure the democracy will come back to haunt arab for sure the question is about the timing when ?

probably never.....They love the kingdom.....and as long as they've all got decent living standards, it's all good....The kingdom is not like other dictatorships, they've got some real clever people running it. You don't just run an oil rich kingdom for decades and decades without loosing a bit of control. And it already has some sort of peoples' say in it. Saudis seem satisfied with their government.

Thats what said if they manage the Pilgrims properly they can milk Billions more then they earn in Oil...

man they've got so much money, it's ridiculous.....
 
Saudi Arabia may go broke before the US oil industry buckles - Telegraph

Saudi Arabia may go broke before the US oil industry buckles

It is too late for OPEC to stop the shale revolution. The cartel faces the prospect of surging US output whenever oil prices rise

If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.

The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.

The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn. Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money.

If the aim was to choke the US shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years. "It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run," said the Saudi central bank in its latest stability report.

"The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience," it said. One Saudi expert was blunter. "The policy hasn't worked and it will never work," he said.

By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands. Consultants Wood Mackenzie say the major oil and gas companies have shelved 46 large projects, deferring $200bn of investments.

The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year - and not only by switching tactically to high-yielding wells.

Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well. "We've driven down drilling costs by "We've driven down drilling costs by 50pc, and we can see another 30pc ahead," said John Hess, head of the Hess Corporation.

It was the same story from Scott Sheffield, head of Pioneer Natural Resources. "We have just drilled an 18,000 ft well in 16 days in the Permian Basin. Last year it took 30 days," he said. The North American rig-count has dropped to 664 from 1,608 in October but output still rose to a 43-year high of 9.6m b/d June. It has only just begun to roll over. "The freight train of North American tight oil has kept on coming," said Rex Tillerson, head of Exxon Mobil.

He said the resilience of the sister industry of shale gas should be a cautionary warning to those reading too much into the rig-count. Gas prices have collapsed from $8 to $2.78 since 2009, and the number of gas rigs has dropped 1,200 to 209. Yet output has risen by 30pc over that period. Until now, shale drillers have been cushioned by hedging contracts. The stress test will come over coming months as these expire. But even if scores of over-leveraged wild-catters go bankrupt as funding dries up, it will not do OPEC any good.

The wells will still be there. The technology and infrastructure will still be there. Stronger companies will mop up on the cheap, taking over the operations. Once oil climbs back to $60 or even $55 - since the threshold keeps falling - they will crank up production almost instantly.

OPEC now faces a permanent headwind. Each rise in price will be capped by a surge in US output. The only constraint is the scale of US reserves that can be extracted at mid-cost, and these may be bigger than originally supposed, not to mention the parallel possibilities in Argentina and Australia, or the possibility for "clean fracking" in China as plasma pulse technology cuts water needs.

Mr Sheffield said the Permian Basin in Texas could alone produce 5-6m b/d in the long-term, more than Saudi Arabia's giant Ghawar field, the biggest in the world.


Saudi Arabia is effectively beached. It relies on oil for 90pc of its budget revenues. There is no other industry to speak of, a full fifty years after the oil bonanza began.

Citizens pay no tax on income, interest, or stock dividends. Subsidized petrol costs twelve cents a litre at the pump. Electricity is given away for 1.3 cents a kilowatt-hour. Spending on patronage exploded after the Arab Spring as the kingdom sought to smother dissent. The International Monetary Fund estimates that the budget deficit will reach 20pc of GDP this year, or roughly $140bn. The 'fiscal break-even price' is $106.

Far from retrenching, King Salman is spraying money around, giving away $32bn in a coronation bonus for all workers and pensioners. He has launched a costly war against the Houthis in Yemen and is engaged in a massive military build-up - entirely reliant on imported weapons - that will propel Saudi Arabia to fifth place in the world defence ranking.

The Saudi royal family is leading the Sunni cause against a resurgent Iran, battling for dominance in a bitter struggle between Sunni and Shia across the Middle East. "Right now, the Saudis have only one thing on their mind and that is the Iranians. They have a very serious problem. Iranian proxies are running Yemen, Syria, Iraq, and Lebanon," said Jim Woolsey, the former head of the US Central Intelligence Agency.

Money began to leak out of Saudi Arabia after the Arab Spring, with net capital outflows reaching 8pc of GDP annually even before the oil price crash. The country has since been burning through its foreign reserves at a vertiginous pace. The reserves peaked at $737bn in August of 2014. They dropped to $672 in May. At current prices they are falling by at least $12bn a month.

Khalid Alsweilem, a former official at the Saudi central bank and now at Harvard University, said the fiscal deficit must be covered almost dollar for dollar by drawing down reserves.

The Saudi buffer is not particularly large given the country's fixed exchange system. Kuwait, Qatar, and Abu Dhabi all have three times greater reserves per capita. "We are much more vulnerable. That is why we are the fourth rated sovereign in the Gulf at AA-. We cannot afford to lose our cushion over the next two years," he said. Standard & Poor's lowered its outlook to "negative" in February. "We view Saudi Arabia's economy as undiversified and vulnerable to a steep and sustained decline in oil prices," it said.

Mr Alsweilem wrote in a Harvard report that Saudi Arabia would have an extra trillion of assets by now if it had adopted the Norwegian model of a sovereign wealth fund to recyle the money instead of treating it as a piggy bank for the finance ministry. The report has caused storm in Riyadh.

"We were lucky before because the oil price recovered in time. But we can't count on that again," he said.
OPEC have left matters too late, though perhaps there is little they could have done to combat the advances of American technology. In hindsight, it was a strategic error to hold prices so high, for so long, allowing shale frackers - and the solar industry - to come of age. The genie cannot be put back in the bottle.

The Saudis are now trapped. Even if they could do a deal with Russia and orchestrate a cut in output to boost prices - far from clear - they they might merely gain a few more years of high income at the cost of bringing forward more shale production later on. Yet on the current course their reserves may be down to $200bn by the end of 2018. The markets will react long before this, seeing the writing on the wall. Capital flight will accelerate.

The government can slash investment spending for a while - as it did in the mid-1980s - but in the end it must face draconian austerity. It cannot afford to prop up Egypt and maintain an exorbitant political patronage machine across the Sunni world.

Social spending is the glue that holds together a medieval Wahhabi regime at a time of fermenting unrest among the Shia minority of the Eastern Province, pin-prick terrorist attacks from ISIS, and blowback from the invasion of Yemen.


Diplomatic spending is what underpins the Saudi sphere of influence caught in a Middle East version of Europe's Thirty Year War, and still reeling from the after-shocks of a crushed democratic revolt.We may yet find that the US oil industry has greater staying power than the rickety political edifice behind OPEC.


Hmm..looks like the Saudis have dug themselves into a hole that would take some getting out of- crude prices seem to be caught in a perpetual slump and that's before the Iranians, with their 150 bln odd barrels of proven reserves, and Chinese tight oil have joined the party. Although their forex reserves should last the Saudis for 4-5 years, accelarating capital flight would see them in trouble much sooner than that.

Beyond the fate of the country itself, I am more interested in the impact of Saudia's unravelling finances and political decline on the dyanmics of the Syrain/Yemeni conflict and other Sunni insurgencies in the Middle East and beyond-hopefully it would deal a body blow to the likes of Al Nusra, Daesh, the Taliban, Al Shabab etc (although I would expect to see a concurrent rise in the risk of civil strife within the kingdom itself)...Interesting times ahead..

Saudi Arabia should diversify its economy away from the oil its the only way in long term to fix this
 
Saudi economy is totally untaxed, even a 5 percent income tax would do wonders, property taxes, a GST, anything could easily cover their expenses, The Saudi economy is huge and it is untapped. There are 7.5 million expats in Saudi, and just taxing them would greatly decrease any deficit they have. Unlike economies which are over taxed, this economy is a gold mine.

Calling for instituting taxation in Saudi Arabia is the same as calling for toppling monarchy. Since an unwritten constitution by which Saudi Arabia and other such petro-monarchies govern is the agreement between the public and the monarchy wherein there will be no taxation with full benefits for citizenry, while there will be no political representation and no dissent. It is a simple system. No tax for no vote system.

Any call for initiating taxation will result in calls for political representation and the end of monarchy. Since if people are forced to pay tax, they will automatically want to know where the money is going and how it is being spent and therefore the start of political dissent.

Even if the entire oil wealth of the Saudis is finished they wont face any issue ... They have Gold mine called Mecca and Madina ... managing the Pilgrims more efficiently alone would keep the Government Super rich ...

And dont forget Saudi Government companies like Saudi Aramco holds Billion's Dollar's of assets apart from the investment's in US and European countries ...

And another thing, population of Saudia is just 18 million thats not even half the population of Mumbai City + its suburbs ... the asset they have with them in Bond, Dollars and investments are very huge...

By Just putting a good accountant in place they can Sustain with ease for an another 3-4 decades with no earning and no taxation...

It was possible decades ago and not now. Decades ago, the population was very low, the people lived a simple life off their land mostly, and they did not need to have the world's third largest defense budget after United States and China.

Things have changed. Without oil money, Saudi Arabia will collapse. Already in 1990's they went through a hard time and had to borrow money. But now this is going to be even worse. But for the world is going to be good since less money for Saudi Arabia will mean safer and saner world as there will be less wahabi propaganda and financing of madrassahs and mosques promoting hatred and violence.
 
LOL ! SAUDIS ain't gonna go broke in this century for sure !!
 

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