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Royal Reckoning: Saudi Arabia Faces Daunting Reality After Crude Crash
"For Saudi Arabia, the shock transmits mainly through the loss in government revenue and exports caused by the drop in oil demand and prices", Moody's said Friday, in the course of cutting the kingdom's outlook to negative from stable. "The government's balance sheet has weakened since the previous oil price shock in 2015-16... leaving the sovereign's credit profile exposed to the further prolonged period of depressed oil prices that the pandemic may usher in".
Moody's assessment reflects (and
While you can’t fault MBS for coronavirus, I think his prior provocations in the family will come back to haunt him.
hopefully so
Peter Zeihan in his recently published book has a chapter on Saudi Arabia, a particularly entertaining chapter by the way. At the end of each chapter, Mr Zeihan provides a report card for that country. And also provides a one-word summation. In the case of Saudi Arabia, that one word is: arsonist. Quite fitting indeed.
Wells shuttered and moth-balled, machinery idle, roughnecks laid off by the tens of thousands, capital investments near zero, and Greta et al magnifying a growing distaste for hydrocarbons, thus accelerating the exiting of sovereign funds and pension plans towards something more ESG.
And yet all the while, outside of this anomaly that is 2020, year after year oil consumption rates continue to rise. Simply put, the 4 billion that reside in China, Africa, India, and SE Asia are getting wealthier and thus their energy needs are growing at a faster rate than the global adoption of green energy. We are at least a decade away before oil consumption rates even plateau.
The cure to low prices, is low prices. And with a little patience the laws of supply and demand will prevail.
It’s all turning out to be a contrarian’s wet dream… and I for one am loading up on the oil blue chips.
Me too brother, me too. I lost some money in oil when price broke down (direct futures play, no USO ETF fiasco here), but I know that those prices cannot stay that low for long as here no one makes money.. Sure the glut is still huge, but EU is already opening back up, US will quickly follow. We will not see flights and tourism back to previous level any time soon if ever, but like you said emerginc economies will need more and more oil which will balance things out. I just hope we do not get wiped out before the recovery 🙂
How are you playing this? Oil related stocks and ETFs (XLe, XOP, IXC..) ETFs on oil (DBO, USL) or directly via futures or futures options? I stay away from equities as they rebounded 50 % from the lows already and due to bad earnings and dividend cuts I am not so bulish on this. I think oil price should now be next to recover while stocks will lag, but I could be dead wrong.. 🙂
Blg Oil ETFs such as FILL and a call option on XOP, and some ERX. Then individual oil companies such as Exxon, ConocoPhillips, Suncor, and Enbridge.
Honestly I don’t have the time or the skill set to adequately determine which in the industry will make it through this rough patch and which will go bankrupt. Buying an ETF like FILL that holds the world’s biggest players is the safest way to go for a guy like me.
Don’t think of a cure for low crude prices. Think of a cure for US jobs being lost in the oil patch. Think of a cure for hard earned US energy independence being lost. Even think of a cure for the environmental impact of the growing wealth in the countries you cite. Tariffs on imported oil is the cure. More expensive oil is good for green energy development.
The Saudi royals are cheating, lying murderers. We spend huge sums militarily to protect them to assure our access to their oil which we no longer need. Import tariffs should be a bi-partisan issue. The powers that be have personal reasons for continuing to kiss the Saudis’ asses.
First, more efficient assets can be restructured to shift refiners to the left-hand side of the cost curve. Second, refiners with marginal assets should be looking out for the best approach and timing for exit.
https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-refining-profiting-in-a-downstream-downturn
I should have added this comment to last post, sorry.
That analysis above is a fine metaphor for where economic stuff is headed, meaning, weak entities, industries and individuals, who are over leveraged, will need to acknowledge this come to Jesus pandemic. That also will include weak political parties reliant on total bullshit.
We all know global GDP was in decline before the virus and we know the vast majority of all Wall Street corporations had weak earnings and bubble accounting, so, as with time tested Darwinism, survivors will adapt by being smart versus relying on absolute piracy.
I assume online shopping was already a growth industry that will quickly adapt, and robotics will take full advantage of Human frailty. The end ….
It would be a failure of vision to separate the current crisis from the one on the horizon. A series of makeshift interventions may assist vulnerable oil-producing countries in rapid recovery, but what they need is a concerted strategy to wean themselves off their dependence on fossil fuel exports. Otherwise, the oil counter-shock of 2020 will be no more than the first step on a path toward terminal crisis.
https://foreignpolicy.com/2020/04/23/the-coronavirus-oil-shock-is-just-getting-started/
How do you think we feel here in Alaska?