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Middle East Oil Producers Are Drowning In Debt

Middle East Oil Producers Are Drowning In Debt

Arab Gulf oil producers are losing billions of U.S. dollars from oil revenues this year due to the pandemic that crippled oil demand and oil prices. Because of predominantly oil-dependent government incomes, budget deficits across the region are soaring.

Middle East’s oil exporters rushed to raise taxes and cut spending earlier this year, but these measures were insufficient to contain the damage.

The major oil producers in the Gulf then rushed to raise debt via sovereign and corporate debt issuance. Bond issues in the region have already hit US$100 billion, exceeding the previous record amount of bonds issued in 2019.

Thanks to low-interest rates and high appetite from investors, the petrostates are binging on debt raising to try to fill the widening gaps in their balance sheets that oil prices well below their fiscal break-evens leave.

Saudi Aramco Taps International Debt Market Again

One of the latest issuers is none other than the biggest oil company in the world, Saudi Arabia’s oil giant Aramco, which raised this week as much as US$8 billion in multi-tranche bonds.

Aramco is tapping the international U.S.-denominated bond market for the second time in two years, after last year’s US$12 billion bond issue in its first international issuance, for which it had received more than US$100 billion in orders.

Saudi Aramco prefers to considerably increase its debt to cope with the oil price collapse than to touch its massive annual dividend of US$75 billion, the overwhelming majority of which goes to its largest shareholder with 98 percent, the Kingdom of Saudi Arabia.

Analysts warn that the dividend windfall from Aramco will not be enough to contain Saudi Arabia’s widening budget deficit if oil prices stay in the low $40s for a few more years.

…click on the above link to read the rest of the article…

Saudi Arabia Refuses To Learn From Its Two Failed Oil Price Wars

Saudi Arabia Refuses To Learn From Its Two Failed Oil Price Wars

Having failed to achieve the slightest semblance of success in the two oil price wars that it started – the first running from 2014 to 2016, and the second running from the beginning of March to effectively the end of April this year – it might be assumed that key lessons might have been learned by the Saudis on the perils of engaging in such wars again. Judging from various statements last week, though, Saudi Arabia has learned nothing and may well launch exactly the same type of oil price war in exactly the same way as it has done twice before, inevitably losing again with exactly the same catastrophic effects on it and its fellow OPEC members. At the very heart of Saudi Arabia’s problem is the collective self-delusion of those at the top of its government regarding the Kingdom’s key figures relating to its oil industry that underpins the entire regime. These delusions are apparently not discouraged by any of the senior foreign advisers who make enormous fees and trading profits for their banks from Saudi Arabia’s various follies, most notably oil price wars. It is, in the truest sense of the phrase, a perfect example of ‘The Emperor’s New Clothes’, although in this case, it does not just pertain to Crown Prince Mohammed bin Salman (MbS) but to all of the senior figures connected to Saudi Arabia’s oil sector. One of the most obvious examples of this is the chief executive officer of Saudi Arabia’s flagship hydrocarbons company, Saudi Aramco (Aramco), Amin Nasser, who said last week – bewilderingly for those who know even a modicum about the global oil markets – that Aramco is to go ahead with plans to increase its maximum sustained capacity (MSC) to 13 million barrels per day (bpd) from 12.1 million bpd.

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How Saudi Arabia Caused The Worst Oil Price Crash In History

How Saudi Arabia Caused The Worst Oil Price Crash In History

  • Saudi Arabia made good on its promise to flood the market with oil after the collapse of the previous OPEC+ deal in early March.
  • The Kingdom’s oil exports jumped by 3.15 million bpd to 11.34 million bpd in April.

Saudi Arabia made good on its promise to flood the market with oil after the collapse of the previous OPEC+ deal in early March, exporting a record 10.237 million barrels per day (bpd) in April 2020, up from 7.391 million bpd in March, data from the Joint Organisations Data Initiative (JODI) showed.  

Total oil exports from Saudi Arabia, including crude oil and total oil products, also soared in April – by 3.15 million bpd to 11.34 million bpd, mostly due to the surge in crude oil exports, according to the data released by the JODI database, which collects self-reported figures from 114 countries.    

Production at the world’s top crude oil exporter also jumped in April—to over 12 million bpd, at 12.007 million bpd, the database showed.

After flooding the market with oil in April and contributing to the oil price crash, OPEC’s de facto leader and largest producer, Saudi Arabia, agreed that same month to a new round of OPEC+ cuts in response to the demand crash and plunging oil prices. Saudi Arabia had to reduce its oil production to 8.5 million bpd in May and June under the OPEC+ deal for removing 9.7 million bpd of collective oil production from the market. 

According to OPEC’s secondary sources in the latest Monthly Oil Market Report (MOMR), Saudi Arabia slashed its crude oil production in May to the required level of 8.5 million bpd.  

…click on the above link to read the rest of the article…

How Much Will Oil Surge When Trading Reopens

How Much Will Oil Surge When Trading Reopens

Now that Goldman has successfully sparked a near-frenzy of chaos, confusion (and market buy orders) ahead of tonight’s trading open, the only question is how high will oil surge. And according to some preliminary estimates, oil analysts expect crude prices to jump at least $5 to $10 a barrel at 6pm on Sunday after some 5% of world oil supply was pulled off the market after a drone strike hit a critical Saudi oil facility.

Saudi Aramco lost about 5.7 million barrels per day of output after several unmanned aerial vehicles on Saturday struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais. And with Saudi Arabia admitting that it could take weeks to restore full production, Bloomberg reports that the Trump administration is ready to deploy the nation’s emergency oil reserves and help stabilize markets if needed.

While oil slumped 3% last week, dropping amid expectations of an Iran detente following John Bolton’s departure, expect a violent reversal when trading reopens tonight.

“This is a historically large disruption on critical oil infrastructure and these events represent a sharp escalation in threats to global supply with risks of further attacks”, wrote Goldman chief commodity strategist Damien Courvalin. “These events are therefore set to support oil prices at their open on Sunday, especially given recent growth concerns and low levels of positioning. The magnitude of such a price rally is difficult to estimate in the absence of official comments on the timeline and scale of production losses.”

Still, one can try to make some educated estimates of what happens next, with consensus gravitating to a $5-10 spike in kneejerk response.

…click on the above link to read the rest of the article…

THE END OF THE OIL GIANTS: And What It Means

THE END OF THE OIL GIANTS: And What It Means

Recently, Saudi Aramco, the world largest oil exporter, has acknowledged that Ghawar, the world largest oil field, is in decline. The news went mostly unnoticed except in the specialised media.  OK, so the Saudi have a bit of bother, so what?  In fact, this piece of news is extremely important. Previously the oil world had been led to believe that Ghawar was producing over 5 Million barrels/day (Mb/d).[1] As part of its fund-raising, Aramco has disclosed that it is in fact down to 3.8Mb/d.

THE END OF THE OIL GIANTS:  And What It Means

GUEST POST: By Dr. Louis Arnoux

The meaning of this news snippet takes a bit of explaining.  What the specialised media did not emphasise is what follows:

When giant oil fields go into decline, they usually decline abruptly. Ghawar’s decline is ominous. It was discovered in 1948 and until recently represented about 50% of the oil crude production of the Kingdom of Saudi Arabia (KSA). Ghawar is representative of some 100 to 200 giant oil fields. Most of them are old.  The most recently discovered giants are of a diminutive size compared with those old giants.[2]

Giants represent about 1% of the total number of oil fields and yet produce over 60% of conventional oil crude.[3]Very few real giants have been discovered in recent years. The geology of the planet is now known well enough and prospects for new significant giant oil discoveries are known to be low.  In recent decades, discoveries of smaller oil fields have not been able to compensate for the eventual loss of the giants. Figure 1 illustrates the matter. It shows the net flux of addition to reserves per year (additional volumes less volumes used). 

 …click on the above link to read the rest of the article…

Never Trust A Banker About Oil Prices

Never Trust A Banker About Oil Prices

Shale

In recent weeks I’ve commented on the powerful bullish forces that have combined in oil and oil stocks and your need to increase your exposure to them. So, before going on to other topics, this has to be the start of any column until further notice, despite the weakness in stock indexes overall.

OPEC and particularly Saudi Arabia continue to drop not so quiet hints about the importance of higher oil prices – for the cartel and the upcoming IPO of Saudi Aramco. In case anyone might have forgotten about their one-shot chance to remake their entire economy and culture, another ‘leak’ of Saudi oil reserve numbers was served up in the past week – a positive one, of course.

Many of the analysts who previously were pessimistic about the rise in oil prices have been slowly and steadily raising their projections. That should neither encourage us or bother us, as bank analysts have a dismal record of correctly projecting prices much into the future. One should always trust a trader first; whose obligation is to his own investments and money and not to retaining the respect of the community or keeping the job. Always remember: An analyst’s first priority is not to be wrong, while a trader doesn’t care if he’s wrong or right, only if he’s got the right side of the trade and making money.

Similarly, the speculative trade from hedge funds continues to be almost uniformly long – a fact that used to bother me much more in the days when bank proprietary trade desks dominated the speculators. In those days, their own positions would often be in conflict with sales, and, Chinese wall or not – could make for some very sticky and fast reversals of positioning inside the banks.

…click on the above link to read the rest of the article…

Saudi Aramco IPO More About Geopolitics Than Finance

Saudi Aramco IPO More About Geopolitics Than Finance

Observers have focused on the financial value of Saudi Aramco—~$1.5 trillion at the low end of the spectrum and as much as $20 trillion at its high end.

While these are awe-inspiring valuations, the IPO’s strategic value—in terms of the Saudi economy and its conflict with Iran and Russia—equals, perhaps even exceeds the IPO’s financial value to Saudi Arabia and its government.

Strategic Objective: The Saudi Economy

As important as the cash this initial share sale in Saudi Aramco (hereafter referring both to Saudi Aramco itself and its downstream subsidiaries) could generate will be the market response to the offer—the price foreign and domestic investors are willing to pay. With this information, the Saudi government will gain a sense of Saudi Aramco’s market value and therefore how much revenue in incremental sales of share in Saudi Aramco could contribute to the Saudi government coffers (adjusted, of course, for expectations for future crude prices).

This information will also signal how much the government could have for priority investments over the next decade or so (after covering operating budget expenditures). In turn, this it will help the Saudi government estimate how much private capital it could attract—assuming various private fund/public fund leverage ratios.

Why is estimating the potential volume of private capital important? Internationally, Saudi Arabia, along with its Gulf Arab allies, is engaged in an existential struggle with Iran (and its ally Russia).

…click on the above link to read the rest of the article…

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