Saudi stocks slump as minister warns of ‘painful’ measures ahead(bloomberg.com)
bloomberg.com
Saudi stocks slump as minister warns of ‘painful’ measures ahead
https://www.bloomberg.com/news/articles/2020-05-03/saudi-stocks-slump-as-minister-warns-of-painful-measures-ahead
83 comments
I'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.
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.
What does sleeping in an open grave mean?
While you were in Iran, were you involved in what the US called the Arab Spring? Was it really spread by Twitter? Did it seem like the regime might topple?
While you were in Iran, were you involved in what the US called the Arab Spring? Was it really spread by Twitter? Did it seem like the regime might topple?
That means they find an unused grave and sleep in it [0].
Google images has some pretty disturbing pictures of the phenomena.
Iran had green movement [1] which happened earlier than Arab Spring. Peaceful protesters rushed to the streets after a fraudulent election and hundreds were murdered by the regime.
The other candidates have been under home arrest ever since.
[0] https://en.wikipedia.org/wiki/Grave_Dwellers
[1] https://en.wikipedia.org/wiki/Iranian_Green_Movement
Iran had green movement [1] which happened earlier than Arab Spring. Peaceful protesters rushed to the streets after a fraudulent election and hundreds were murdered by the regime.
The other candidates have been under home arrest ever since.
[0] https://en.wikipedia.org/wiki/Grave_Dwellers
[1] https://en.wikipedia.org/wiki/Iranian_Green_Movement
You're right. I was thinking of Green Movement, not the Arab Spring. Thankss for correcting.
The fuck is up with the downvotes?
It seems like the Arab spring was mainly caused by a spike in food prices.
I'd draw a pretty significant distinction between Iran and Saudi Arabia.
Iran has a theocratic regime, and gets a lot of oil revenue, but is a fundamentally diversified and surprisingly self-sufficient economy. They have factories, an educated population, and they produce a fair number of things other than oil. Agriculture exists (if not self-sufficient).
Saudi Arabia is oil rich. The princes are oil rich. The wealthy are oil rich. Normal people are oil rich. It's oil, all the way down.
The country simply doesn't produce anything else. Most of the citizens simply don't work -- at all. There's no plan B.
Iran can fall back to "hard times" and a pre-oil-wealth economy. SA can't. There's nothing else there except sand and starvation. They aren't going to "grin and bear it".
Iran has a theocratic regime, and gets a lot of oil revenue, but is a fundamentally diversified and surprisingly self-sufficient economy. They have factories, an educated population, and they produce a fair number of things other than oil. Agriculture exists (if not self-sufficient).
Saudi Arabia is oil rich. The princes are oil rich. The wealthy are oil rich. Normal people are oil rich. It's oil, all the way down.
The country simply doesn't produce anything else. Most of the citizens simply don't work -- at all. There's no plan B.
Iran can fall back to "hard times" and a pre-oil-wealth economy. SA can't. There's nothing else there except sand and starvation. They aren't going to "grin and bear it".
Fairly sure I'v seen news over the past few years about Saudi Arabia diversiftying.
From https://saudiembassy.net/agriculture-water -:
Today, Saudi Arabia exports wheat, dates, dairy products, eggs, fish, poultry, fruits, vegetables and flowers to markets around the world. Dates, once a staple of the Saudi diet, are now mainly grown for global humanitarian aid.
...
As a result, there has been a phenomenal growth in the production of all basic foods. Saudi Arabia is now completely self-sufficient in a number of foodstuffs, including meat, milk and eggs.
From https://saudiembassy.net/energy -:
In addition, with the discovery of deposits of precious and semi-precious metals, Saudi Arabia expects to become a major exporter of minerals in the coming decades.
...
Exploration projects over the past two decades have unearthed extensive deposits of precious and industrial minerals throughout the country. These include not only gold and silver, but also copper, tin, tungsten, nickel, chrome, zinc, lead, phosphates, iron ore, bauxite, potassium ore and even table salt.
From https://saudiembassy.net/agriculture-water -:
Today, Saudi Arabia exports wheat, dates, dairy products, eggs, fish, poultry, fruits, vegetables and flowers to markets around the world. Dates, once a staple of the Saudi diet, are now mainly grown for global humanitarian aid.
...
As a result, there has been a phenomenal growth in the production of all basic foods. Saudi Arabia is now completely self-sufficient in a number of foodstuffs, including meat, milk and eggs.
From https://saudiembassy.net/energy -:
In addition, with the discovery of deposits of precious and semi-precious metals, Saudi Arabia expects to become a major exporter of minerals in the coming decades.
...
Exploration projects over the past two decades have unearthed extensive deposits of precious and industrial minerals throughout the country. These include not only gold and silver, but also copper, tin, tungsten, nickel, chrome, zinc, lead, phosphates, iron ore, bauxite, potassium ore and even table salt.
I would speculate that most of what SA exports is heavily subsidized and unprofitable. Dates flourish in the Arabian desert around an oasis. Where are they getting the water for the dates and water for milch for dairy, ...?
Probably desalination plants run on Oil.
I am sure they can keep doing this but this is not a natural extension of any of their strengths. Their labor is over priced and mostly imported south asians, overburdened by heavy bureaucracy and lacking in the inputs of production.
Would you open a dairy farm in Namibia? If they really have to tighten their belts they will have to cut down on all these "extra-curricular" economic activities.
Probably desalination plants run on Oil.
I am sure they can keep doing this but this is not a natural extension of any of their strengths. Their labor is over priced and mostly imported south asians, overburdened by heavy bureaucracy and lacking in the inputs of production.
Would you open a dairy farm in Namibia? If they really have to tighten their belts they will have to cut down on all these "extra-curricular" economic activities.
I mean, sure, they've made nominal efforts. I hope they succeed. But the fact is, here's the current breakdown of exports: https://oec.world/en/profile/country/sau/
>current
Data is from 2017. Single largest non-petro export being aluminum, at 0.51%.
Data is from 2017. Single largest non-petro export being aluminum, at 0.51%.
I'm a Saudi citizen, and most of you just wrote is false & completely not true..
" Most of the citizens simply don't work -- at all"
Where in the world you got this??
" Most of the citizens simply don't work -- at all"
Where in the world you got this??
Hi Emil. I just wanted to tell you I had a burst of nostalgia when I noticed your username. I got interested in computers and software browsing TechnoTux forums and trying (and failing) to install Parsix. I really appreciate the work you did on open source software and bringing them to Farsi speakers. I wish you the best wherever you are.
Oh a fellow Technotux member! I also burst into nostalgia reading your comment. I'm glad I was able to help. I Wish the same for you.
>Probably a few wars too.
Not sure how you're gonna fix this with wars given that every oil producer is underwater. Even if you capture someone else's oilfields...then what? Produce oil there at a loss too?
Not sure how you're gonna fix this with wars given that every oil producer is underwater. Even if you capture someone else's oilfields...then what? Produce oil there at a loss too?
Modern wars aren't fought out of rational calculation that they'll improve the situation. They're fought when existing conflicts have their flames fanned just a bit too much, or when factors holding them in check suddenly change. I think the smart money is that oil prices will recover soon - but if they don't, we'll discover a whole world of conflicts which were previously suppressed by the reliable invariant of a rich Saudi government.
Broke governments can't subsidize food, water, medical care, or other services. The Arab Spring was kicked off by a local drought and rising food prices. It's easy to support a repressive monarchy when the money is flowing and you're sittin pretty while well fed, and in comfy AC.
Example: https://www.theguardian.com/lifeandstyle/2011/jul/17/bread-f...
The Arab Spring in Syria led to rebellions that spilled into Turkey and Iraq (Kurds, ISIS, Russian and US intervention, etc.).
> Even if you capture someone else's oilfields...then what? Produce oil there at a loss too?
They're not after oil fields per se, but changes in control, money, and other resources. If oil is so cheap that the price is negative then it means you can fly your attack craft without worrying about fuel costs...
Example: https://www.theguardian.com/lifeandstyle/2011/jul/17/bread-f...
The Arab Spring in Syria led to rebellions that spilled into Turkey and Iraq (Kurds, ISIS, Russian and US intervention, etc.).
> Even if you capture someone else's oilfields...then what? Produce oil there at a loss too?
They're not after oil fields per se, but changes in control, money, and other resources. If oil is so cheap that the price is negative then it means you can fly your attack craft without worrying about fuel costs...
Here's the break even breakdown
https://data.imf.org/regular.aspx?key=60214246
https://data.imf.org/regular.aspx?key=60214246
Though 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.
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.
Can you explain what it means to balance the budget? Is it like break even price for the industary?
Thousands of princes will go hungry. Even prince Mohamed "bone saw" might lose a few pounds. Bad news everywhere...
The 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.
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.
> 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.
Much of that revenue is FX. That increases its value, riyal for riyal, to the fixed-rate currency Kingdom.
Can 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.
Maybe they can use some of they money they invested in wework and such
Hilarious that while the rest of the market was booming they were losing billions.
I 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.
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.
Ahh 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.
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.
Regimes 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.
Unless there is a serious rift in the top level elites, they can survive.
The 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.
That said, the system of keeping the royal family fat and happy with lavish stipends is entirely by design.
The 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.
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.
Ya, and they were diversifying into tourism which is also bust.
I’m sure they’ll survive though. Their wealth is in the trillions.
I’m sure they’ll survive though. Their wealth is in the trillions.
Foreign 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-res...
At these prices, SA can’t just turn oil into dollars (well, not many dollars anyway).
[0] - https://www.middleeastmonitor.com/20200430-saudi-foreign-res...
I imagine that foreign creditors will allow KSA to get much closer to 0 than they’d allow most other countries because KSA has a clearer path to repayment; bow out of the current oil production spat with Russia. But spending down 5% in one month is alarming.
The Saudi budget is a quarter of a trillion dollars. “Trillions” doesn’t last very long at those levels.
Sounds like at least 4-5 years.
+ increased borrowing costs as the deficits begin to worry investors.
Saudis aren’t exactly known for their adherence to austerity.
They will have to make due with BMW and Mercedes Benz.
Venezuela and Syria have survived much worse with fewer resources. There will definately be enough money for the police and military.
Those 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
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
But 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.
Also notable is that Syria is a "failed state" largely because of the oil money pumped into the opposition by those same Gulf States.
And 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.
Yes 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.
I think it's arguable that either of those countries survived.
That's what the US troops are there for. The US needs the Saudi dictators to maintain their influence in the region.
Needed, 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”.
FWIW, I would not underestimate the degree to which foreign powers that are, otherwise, irrelevant to US interests can capture parts of the US political system. It is an unfortunate fact that political influence is not all that expensive to purchase.
C'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
[2] https://en.wikipedia.org/wiki/Petroleum_in_the_United_States...
[3] https://nationalpost.com/news/canada/why-has-canada-spent-bi...
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
[2] https://en.wikipedia.org/wiki/Petroleum_in_the_United_States...
[3] https://nationalpost.com/news/canada/why-has-canada-spent-bi...
The 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.
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.
The article about why Canada imports oil is interesting. Some of the Maritimes are cut off from pipelines, and aren't set up to refine bitumen. It's actually just cheaper to buy KSA oil than solve these problems. I wonder if this is true in the US since I was under the impression West Texas Intermediate was pretty comparable to Arab Light. I'd love to learn more about the specifics here.
IIRC many American refineries were retooled at great cost to eat both Canadian and South American oil, which is lower quality than the Arab stuff; nobody expected that fracking would suddenly produce a glut of really high quality oil.
Also, good quality oil can be used to dilute thicker oils to the point where refineries can process them. It’s my understanding that this is how you process Venezuelan oil for example. It wouldn’t surprise me to find out that American oil is being exported to blend other stuff before refining.
Also, good quality oil can be used to dilute thicker oils to the point where refineries can process them. It’s my understanding that this is how you process Venezuelan oil for example. It wouldn’t surprise me to find out that American oil is being exported to blend other stuff before refining.
Well US troops are there to be a check on Iran, China and Russia. Terrorism is a rare side effect.
It's not only about the US need for Saudi oil.
It's about controlling the access to oil of friends and foes. Can't be the global hegemon without controlling that access.
And it's also about keeping oil being billed in US dollars. That's why the US can print as much money as they want (well, almost).
It's about controlling the access to oil of friends and foes. Can't be the global hegemon without controlling that access.
And it's also about keeping oil being billed in US dollars. That's why the US can print as much money as they want (well, almost).
The Saudi’s have burned through generations of radicals by exporting them to other conflicts. Afghanistan, Balkans, Chechnya, Somalia, Indonesia, Libya, Iraq, Syria and Yemen.
With an ever increasing population and shrinking pot of gold, I’m thinking Syria Part II once the current regime in Washington DC is removed.
For neoliberals, like neocons, Terrorism is a feature - not a problem. Neither have had a seat at the table for the last 4 years, but they’re not going to let this opportunity go to waste.
And we’re going to pay for it.
With an ever increasing population and shrinking pot of gold, I’m thinking Syria Part II once the current regime in Washington DC is removed.
For neoliberals, like neocons, Terrorism is a feature - not a problem. Neither have had a seat at the table for the last 4 years, but they’re not going to let this opportunity go to waste.
And we’re going to pay for it.
The US "was" energy independent. But now all the US oil drillers are shutting down. The same factors hurting Saudi are hurting oil in the US.
Yeah, but now we’ve proven that we can supply our own oil without it being a major drag on the economy.
We may go back to importing one the short term, but losing access to Saudi crude is now a 100% solvable problem, because all we need to do is ramp up fracking again.
We may go back to importing one the short term, but losing access to Saudi crude is now a 100% solvable problem, because all we need to do is ramp up fracking again.
While price drops can hurt US oil companies, the US is now immune to price spikes, since it can spool up oil production quickly.
Maybe Congress needs to bail out oil producers during a glut, but that’s a lot cheaper than Saudi having to run most of their economy on credit.
Maybe Congress needs to bail out oil producers during a glut, but that’s a lot cheaper than Saudi having to run most of their economy on credit.
The US oil business has always been boom or bust.
After prices rise the oil will still be there.
After prices rise the oil will still be there.
> US foreign policy used to be shaped around our need for Saudi oil
US foreign policy is shaped around making sure the whole region remains in conflict. That allows for more weapons sales, cheaper oil due to infighting, and excuses to intervene and have the military there.
US foreign policy is shaped around making sure the whole region remains in conflict. That allows for more weapons sales, cheaper oil due to infighting, and excuses to intervene and have the military there.
America no longer wants cheap oil; it crowds out the natively produced stuff. Gasoline is currently < $1/gal in many states due to the production glut and pandemic, and the president is currently talking about how to increase the cost of oil.
I don't think that everyone has fully grasped how America being energy independent changes the game.
I don't think that everyone has fully grasped how America being energy independent changes the game.
> 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_rat...
> 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_rat...
The 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-believe...
> 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-believe...
Oil 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.)
(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.)
How 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.
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.
I 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.
I assume the parent is referring to the fact that companies, like Occidental ($OXY) were paying $3.18/share in annual dividends prior to this crash, while trading in the mid-high $40's (~9%). Now that $OXY is down at a near-term high of $15/share that dividend yield represents 21.2%. A few weeks ago it was down at $10/share (~31.8%). That's just one off-hand example, and it's pretty comparable across the industry. Even big players like $XOM were/are in a similar boat, if not to the same extent.
$OXY earnings is coming up this week and I suspect that dividend is going to get slaughtered -- after all, they elected to pay Warren Buffet's special dividend in stock in lieu of cash. If the op is super-long term, I assume they're suggesting that the stock could return, and with it, the dividend, which would be "30%" of your original investment.
$OXY earnings is coming up this week and I suspect that dividend is going to get slaughtered -- after all, they elected to pay Warren Buffet's special dividend in stock in lieu of cash. If the op is super-long term, I assume they're suggesting that the stock could return, and with it, the dividend, which would be "30%" of your original investment.
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.
> 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?
Is garden variety hedging and diversification really all that noteworthy?
Indeed. 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)
Yes the oil industry is going to take years to recover from 2020.
Maybe 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.
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.
And when it does there won't be much demand for it anyway imo
Many 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.
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.
Texas is leading the US on wind. I don't think the American energy companies plan to die out as fossil fuels lose preeminence.
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-...
[2] https://www.reuters.com/article/us-saudi-economy-imf/saudi-a...