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  1. #1
    Thailand Expat tomcat's Avatar
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    Oil Curse: Sooner Rather Than Later

    ...future teflers hoping to make some cash in the Gulf may be out of luck...

    The Decline and Fall of the Gulf’s Oil Empire Is Looming

    Price wars may have little bearing on the inevitable crash in wealth.
    By David Fickling (Bloomberg)
    March 22, 2020, 7:00 AM GMT+7



    The end of the Gulf as we know it is coming. Photographer: Karim Sahib/AFP/Getty ImagesDavid Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

    For much of the world, oil wealth is a curse. Endowed with ample reserves of hydrocarbons, the likes of Nigeria, Angola, Kazakhstan, Mexico and Venezuela frittered the benefits away.

    Only in the Persian Gulf has oil been a nation-building blessing. The discoveries of petroleum in the mid-20th century turned an anarchic, desperately poor region into one of the most affluent places on the planet. Qatar, Kuwait and the United Arab Emirates are all richer than Switzerland. Even Saudi Arabia, Bahrain, and Oman are on a par with Japan or the U.K.

    The transformation has been so complete that it’s easy to believe the wealth derives from some eternal law of nature. That’s not true, though. The current price war in oil markets will only hasten the moment when the unsustainable nature of Gulf economies faces a brutal reckoning.

    Right now, all six monarchies are joining with Russia in opening the taps to flood the crude market and flush out higher-cost producers. While the planned 2.5 million barrels per day increase from Saudi Arabia is by far the biggest wave in this tsunami, its neighbors aren’t holding back. The U.A.E. will daily add about 200,000 barrels or more, according to consultancy Rystad Energy, while Kuwait will lift output by 110,000 barrels. Russia will raise daily production by 200,000 barrels.

    That splurge of supply isn’t due to geopolitics. Instead, it’s a mathematical result of the decline in the oil price. With fewer dollars coming in for each barrel of crude, Gulf monarchies need to pump much more to maintain something resembling current revenues.

    In principle, there’s ample firepower to fight this war. It costs about as much to pump a barrel of oil from a Gulf oilfield as it does to buy a bottle of fancy mineral water. Even in an extreme scenario where crude prices fall as low as $10 a barrel and almost the entire global oil industry loses money, Gulf producers would remain in the black. The problem, as we wrote last week, comes for their economies, which need a far higher price to balance their budgets and support dollar-linked currencies.

    The region’s central banks and sovereign wealth funds have assembled vast sums to see them through such a crisis, as well as the longer-term risk of declining demand. Faced with lower prices, however, these buffers could disintegrate quickly.

    Take the net financial assets held by Saudi Arabia’s government — central bank reserves, plus sovereign wealth fund assets, minus government debt. These declined to just 0.1% of gross domestic product from 50% over the four years through 2018 as crude plunged from levels of around $100 a barrel at the end of 2014. The kingdom is now likely to be a net debtor for the foreseeable future, even if prices rise back above $80.

    Over the same four years, net financial assets held by the six Gulf monarchies fell by around half a trillion dollars, to around $2 trillion, according to a study last month by the International Monetary Fund. Even if peak oil demand doesn’t hit until 2040, that remaining sum could be depleted by 2034, according to the Fund. Oil at $20 a barrel would run it down even faster, emptying the coffers as soon as 2027.

    With oil prices in the range of $50 to $55 a barrel, Saudi Arabia’s international reserves would fall to about five months of import coverage as soon as 2024, according to an IMF report last year. That should be a deeply alarming prospect, bringing the kingdom within months of an unthinkable balance-of-payments crisis and the abandonment of the dollar peg, which has underpinned the global oil trade for a generation. Yet the prices we’re now seeing make this look almost like an optimistic scenario.

    There’s still time to avert this future, but it will involve major changes to our ideas about the Gulf and its the role in the global economy.
    Governments in the region enacted vicious budget cuts in the wake of the 2014 price decline, removing subsidies and adding sales taxes in a way that’s fraying the edges of their sumptuous welfare states. If they fall to an even-lower ledge, there will be pressure to add further taxes and shrink bloated civil services. Neither will be popular with citizens who have never been allowed a democratic vote. Lavish defense and security spending, which accounts for nearly a third of Saudi Arabia’s budget, may have to shrink.

    The era when the Gulf nations and their sovereign wealth funds were magic cash machines prepared to pay top dollar for assets on every continent may be coming to an end. They may even have to turn into net sellers. That will affect institutions from the U.S. Treasury market, where Saudi Arabia holds about $183 billion of securities; to Softbank Group Corp., which may find Riyadh a less generous partner for funding Masayoshi Son’s expansive visions.

    The monarchies have surfed a remarkable tide of wealth over the past half-century or so, but every wave eventually crashes. Future generations will never again see the wealth that current subjects enjoy. Perhaps the Gulf wasn’t spared from oil’s curse, after all. That moment was only deferred.
    Last edited by tomcat; 23-03-2020 at 09:38 AM.
    Majestically enthroned amid the vulgar herd

  2. #2
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    Good I hate to see those bastards swimming money. Oil at $20 a barrel should slow them down a bit.

    Let the sand wash back over them and the cities oil paid for.

  3. #3
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    Looks like Putin has them over a (groan) barrel.

  4. #4
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    Yeah should be an interesting battle to watch as we enjoy cheap gasoline.

  5. #5
    Thailand Expat David48atTD's Avatar
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    Agreed Tom ... a little earlier ... OPEC deal collapse sparks price war --- ‘$20 oil in 2020 is coming’



    Quote Originally Posted by David48atTD View Post

    OPEC Secretary General Mohammed Sanusi Barkindo (L), Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman (C) and Russian Energy Minister Alexander Novak (R) attend an Opec-JMMC meeting in the UAE capital Abu Dhabi on September 12, 2019.
    KARIM SAHIB | AFP via Getty Images

    Key Points

    • Oil prices are down 30% for the year as the new coronavirus, COVID-19, slashes global demand forecasts.
    • With previously agreed OPEC+ production cuts expiring at the end of March, Saudi Arabia and Russia can theoretically pump as much crude as they want.
    • International and U.S. oil benchmarks plummeted to multiyear lows on Friday, with Brent crude closing at $45.27, down more than 9%, and West Texas Intermediate down more than 10%.


    OPEC deal collapse sparks price war: '''$20 oil in 2020 is coming'''
    “Someone is sitting in the shade today because someone planted a tree a long time ago”

  6. #6
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    Saudi Arabia will increase public debt due to coronavirus
    March 20, 2020, 21:20

    Saudi Arabia plans to increase the maximum value of public debt from 30 to 50% of GDP against the backdrop of coronavirus, the country's finance minister, Mohammed al-Jadaan, said.

    “The government has received approval to increase the ceiling on public debt to 50% of GDP instead of 30%. The government has ample financial opportunities, we have reserves, very large investments, but we do not want to withdraw any amounts from the reserves and go for borrowing. We will resort to loans, but the volume of the state loan will not exceed 100 billion riyals (more than $ 27 billion - approx. VIEW) this year, ”the minister said, RIA Novosti reports .

    According to him, it is planned to increase spending on some sectors of the economy, including healthcare, reduce the scope of entertainment, sports, tourism, less money will be directed to the development of the metro and bus services.

    On Thursday, Saudi authorities partially cut spending on the 2020 budget amid falling oil prices. Meanwhile, the European Union decided to abolish all fiscal austerity measures to mitigate the economic consequences of the coronavirus pandemic.

    ?????? / ?????????? ?????? ???????? ??????? ??-?? ????????????

  7. #7
    Thailand Expat Airportwo's Avatar
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    Quote Originally Posted by sabang View Post
    Looks like Putin has them over a (groan) barrel.
    Ideal opportunity for a "crude" jest!

  8. #8
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    There's a page below which tracks a range oil news stories, talk of Uncle Sam trying to ease things but saying that would only stabilise oil to the $30 range. I made my play on a 2x leveraged EFT at $22.6 so we'll see how that goes.

    https://www.newsnow.co.uk/h/Business+&+Finance/Oil+Prices

  9. #9
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    Wut?

    ...and give up this view?

    Oil Curse: Sooner Rather Than Later-khobar-commute-jpg
    Attached Thumbnails Attached Thumbnails Oil Curse: Sooner Rather Than Later-khobar-commute-jpg  
    Pues, aquí estamos.

    Time flies like an arrow. Fruit flies like a banana.

  10. #10
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    Quote Originally Posted by happynz View Post
    ...and give up this view?
    It is beautiful do not encourage them to leave.

  11. #11
    Thailand Expat TheRealKW's Avatar
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    Quote Originally Posted by naptownmike View Post
    Good I hate to see those bastards swimming money. Oil at $20 a barrel should slow them down a bit.

    Let the sand wash back over them and the cities oil paid for.
    Perhaps you missed the but about affecting US securities?

  12. #12
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    Why not to make use of wheat and get rich? (from rugs to riches)...

    Russian wheat rose record-breaking and overtaking oil

    Over the past week, amid the depreciation of the ruble and rising grain prices around the world, Russian wheat rose record prices. At a cost per ton in the domestic market, it overtook oil, Kommersant writes.

    Average prices for food wheat, according to Sovecon estimates, amounted to 13.27 thousand rubles per ton, which is 1.02 thousand more than in the previous week. This is the highest level in history.

    Meanwhile, the Russian brand of oil Urals at the end of last week was trading at 12.85 thousand rubles per ton (about $ 20 per barrel).

    Experts expect domestic value growth to continue as grain producers want their share of exporters' earnings. In addition, not fully played out a factor reducing the ruble.

    Oil tests the lowest levels for decades against the background of two factors at once. This is the coronavirus pandemic, which sharply reduced the demand for raw materials due to industrial shutdowns in several countries, and the collapse of the OPEC + agreement.

    The Russian authorities say that in 2020 the country's economy is ready for low oil prices better than in the period 2014-2015. The federal budget includes the price of 42.4 dollars per barrel of Urals, that is, two times higher than the current one. In this regard, the government thought about sequestration of the budget.

    Oil Curse: Sooner Rather Than Later

  13. #13
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    ^

    The LORD
    may review the situation come late November.

    A tray full of GOLD is not worth a moment in time.

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