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Saudi Oil Minister Puts On Brave Face Amid Severe Headwinds: "Eventually, Economic Producers Will Prevail"
As the EM world looks on helplessly while Saudi Arabia’s war with the US shale complex (and, by extension, with the Fed) serves to keep crude prices depressed putting enormous pressure on commodity currencies and accelerating emerging market outflows, the question is whether Riyadh’s SAMA piggy bank can outlast the various capital market lifelines available to America’s largely uneconomic shale drillers.
It’s tempting to simply say “yes.” That is, with the next round of revolver raids due in days and with HY spreads blowing out amid jittery US markets, it seems unlikely that maligned US producers will be able to survive for much longer, and despite the fact that data out yesterday shows Riyadh’s FX reserves falling to a 32-month low, the Saudi war chest still amounts to nearly $700 billion, giving the kingdom plenty of ammo. However, between maintaining subsidies, defending the riyal peg, and fighting two proxy wars, Saudi Arabia’s fiscal situation has deteriorated rapidly, forcing Riyadh to tap the bond market in an effort to help plug a hole that amounts to some 20% of GDP.
Given the above, some have dared to suggest that in fact, the Saudis could lose this “war” just as they may be set to lose their status as regional power broker to Tehran thanks to Iran’s partnership with Moscow in the ongoing effort to shore up Assad in Syria and wrest control of Baghdad from the US.
But don’t tell that to Saudi Arabia's Oil Minister Ali al-Naimi who says that despite all the uncertainty, the economics of oil exploration and production will prevail at the end of the day. Here’s Reuters, citing Economic Times:
Saudi Arabia's Oil Minister Ali al-Naimi believes economic producers will prevail over higher-cost suppliers and OPEC's share of the market will rise, India's Economic Times newspaper reported on its website on Monday.
In comments suggesting Saudi Arabia, the world's top oil exporter, is sticking to its policy of defending market share rather than supporting prices, Naimi told the paper the drop in oil prices was less of a problem than fluctuations.
"The world needs a reliable, sustainable supply. Best way to do it is to make sure that demand and supply should be equal, so there will not be fluctuation of price. The biggest problem for everybody, producer and consumer today, is fluctuation — the ups and downs," he was quoted as saying.
Referring to reports that the number of drilling rigs deployed by U.S. shale producers is falling, Naimi said: "Eventually, economic producers will continue to prevail," the paper reported.
Naimi disagreed with analysts who believe OPEC's market share would fall further, the paper reported. "On the contrary, OPEC's market share will be higher," he said.
Maybe so, but make no mistake, this is a precarious time for the Saudis. If the US shale complex finally folds under the weight of its own debt, bad economics, and less forgiving capital markets allowing Riyadh to raise prices again having secured the future of the country's market share, and if Iran and Russia end up being content with preserving the regional balance of power and don't move to push the issue in Iraq and Yemen once they're done "saving" Syria, then the Saudis may well weather the storm.
However, there are quite a few things that can go wrong here that would serve to destabilize the situation and if the rumors about a rebellion within the royal family are true, the slightest misstep could end up being catastrophic.
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Eventually, if you rape a camel enough, it will give you a smooth ride.
The Saudis and McCain should know.
IMHO be is probably correct, unless The Fed wants to bail out Shale. And, unfortunately, experience has shown that ANYTHING is possible in these things still laughingly referred to as "Markets".
I'm not too sure of that. McCain doesn't seem smooth at all. If anyine has more pants down/Depends off, all boyishy rouged up to the Saudies it"s Crash McCain.
I think the cost of electricity should be quadrupled at night!
Does Ali consider all those useless slobs paid to sit around with the AC blasting while slaves from the third world do their work "economic".
"if Iran and Russia end up being content with preserving the regional balance of power and don't move to push the issue in Iraq and Yemen once they're done "saving" Syria, then the Saudis may well weather the storm"
SA will weather the storm "if" they give up their aggression in the region permanently - Iran will have major input and control of Iraq and Syria, Hezbollah via partnerships and good chance the Kurds will see the opportunity for their piece as well - Yemen will flank SA more than by merely Geography with Iran and the Taliban sooner or later will take back Afghanistan.
SA and Iran coupled with the negotiating skill of Russia can create peace for all including Gaza as separate state with Israel cooperating for their own good - if the US is not involved
BeBe and Putin have no respect for Obama (the Pidgeon who knocks over the chess pieces and shits on the board) - they can make a deal together that ends this US shit show for the last 70 years
SA should have known better before they started messing with Putin, todays ruling clan is burdened with entitlement among countless princess who demand cash on a monthly basis, with oil revenues dropping they is far less to go around and it is only a matter of time before they start revolting against a geriatric 'monarch'. Not to forget many Muslims feel contempt with Saudis being keepers of Meccah, aka 'holliest place with dirtiest people'. Saudi monarchy will need a miracle to survive over the next 10 years, even with all the backing they are getting from Uncle Sam and all the tricks and oppression over their own people they are employing to stay in power. Good riddance I'd say.
"The Sunni will come out ......To-Morrow.....and the petro-dollar will fol-low...."
Well, what the oil minister said is true.
But hiding the social welfare system Aramco profits support on state balance sheets doesn't mean they are not oil production expenses.
So while true that fact does not necessarily attribute to Saudi Arabia... Nor necessarily to Russia where a similar though less extravagant arrangement exists.
The same could be said for Texas, whose oil industry supports the lack of state income taxes......or even more significant the state of AL who not only has no state income tax but pays what amounts to annual divvys to its' citizens out of oil production proceeds.
Or we could begin to talk about the massively unfunded public and private pensions in US taht are so ubiquitous today or the SS, Medicare and Medicaid systems that are just about broke with promises for generations to come that will not be paid.
Quite frankly, if we are purely speaking of relative fiscal condition comparisons, i would place my bets and give odds to SA over "murica. Odds of House of Saud surviving what seems like a certain coup on the rising forthcoming would not be so great however. Heads are about to roll in SA and while that is a pretty common scene there, Princes and Ruling Families joining in losing there heads is a fairly rare occurence. Interesting times fo sho.
Actually it's the ridiculous property taxes that compensate for a lack of state income tax in Texas.
who gives a fk, saudi can sink into the sand and the world would be a better place, same for NYC...both are abominations
Our one-to-another schemes, father-son, government-citizen, supply-demand, and then, producer-consumer; this are all nice belittlements blending about what really is settled.
One part is better placed than the other who operates in a depending mode.
The possible moves between the elements of such a relation are in principle free as you have freedom to act on a battlefield - "where the slightest misstep could end up being catastrophic" and "destabilize the situation".
Sustainable to make such is a brave undertaking. It has been tried and tried all the long of our history so there is a good point to stat that the most sustainable, concerning the matter, is the supply of ideas how this could be achieved.
Till that moment we are sorry to advise for the hold on at that unsettling behavior of up and downs, back and forth and - you know the pain.
The problem remains that fracking technology has unleashed a much greater supply of oil that anyone could have predicted from old and new wells. This means that Oil must be viewed in competititon to all energy sources such as Natural Gas whose price is more than half of what it was 5 years ago and still struggling while Solar power prices have been nailed down at less than 4 c/kwh and more is on its way... Let us not forget the immense over-capacity in refining still not marked down! don't think we have seen the lows for fossil fuels as I think we will have to go to $35/bbl to find some stability provided the rest of the energy pool does not come down more...