Remember back in late 2015/early 2016 when everyone was panicking about the Saudi riyal peg after the kingdom cut subsidies in an effort to plug a yawning budget gap?
Basically, Riyadh set out to implement austerity as an offset to plunging crude prices and as a means of stanching the attendant SAMA burn. That spooked markets even more than they were already spooked.
A dangerous diplomatic incident with Iran (occasioned by the execution of prominent Shia cleric Nimr al-Nimr) didn’t help matters.
Before anyone knew it, 12-month riyal forwards had skyrocketed to 1000 points, surpassing a previous record hit in 1999. Well, we’re nowhere near that level of concern currently, but it is worth noting that amid oil’s latest plunge, forward points are on the rise again and are sitting near YTD highs…
(BBG)
For context, here’s the two-month chart:
(BBG)
While we’d still suggest that Riyadh can ultimately outlast US producers despite having lost the all-in competitive advantage (see here), you should keep in mind that this is two pegs under pressure.
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