GRG 55 might be on to something

[GRG55]

Re: GRG 55 might be on to something

If upstream is toast, how do you see the midstream pipeline sector faring? Can they hang on long enough without going bankrupt?

I see I missed this post shiny!

I'm not much of a follower of the pipeline companies, especially in the USA. I believe many are structured as yield instruments through MLPs (Master Limited Partnerships). I would expect them to do better in times of declining interest rates, similar to how a bond behaves.

However, right now the biggest issue facing any such service provider is a fall off in demand. If the pipeline companies see a dramatic reduction in capacity throughput as a result of the virus it is going to be highly disruptive to their operations and dividend payouts. As for bankruptcy, that will depend on the individual balance sheets, income statements, borrowing and so forth, so very company specific. In the end the pipelines provide an essential service, distributing energy that people need and will continue to use. But just because the asset is needed doesn't mean in any specific case the management is taking care of shareholders/unit holders first.

[shiny!]

Re: GRG 55 might be on to something

Thank you, kind sir!

[GRG55]

Re: GRG 55 might be on to something

Western Canada Select now at $13.30, down another 18% today.

I think we are getting pretty close to the end of this washout now. Not that it really matters given the destruction going on in the rest of the economies globally.

The Persian Gulf States and Kingdoms seem to have come together in a remarkable display of Arab unity and executed a coordinated "opening of the taps" with far more determination than anyone should have expected.
I would anticipate that will get Russia's attention and we should see some attempt to quietly get back to the table to come to some resolution about supply management after all. The face-saving excuse will be "nobody" anticipated the effects of 2019-nCoV, LOL.

Western Canada Select down to $11.55.

To buy a US$ at the beginning of this year cost about $1.30 Canadian. Today it takes $1.46 Canadian.

[touchring]

Re: GRG 55 might be on to something

Western Canada Select down to $11.55.

It's about 2 weeks of low prices.

I read that oil sand producers have got lower costs than shale oil producers. Is this true?

[GRG55]

Re: GRG 55 might be on to something

It's about 2 weeks of low prices.

I read that oil sand producers have got lower costs than shale oil producers. Is this true?

There's no such thing as a single cost for either oil sands or shale that can be compared. You need to compare different plays, different projects and different producers against each other. Also, those oil sands/heavy oil producers with upgrader capacity (e.g. they don't sell bitumen) continue to receive a premium price; Syncrude Sweet Premium is trading at $25.95 right now, vs $11.55 for Western Canada Select. Syncrude is above Domestic Sweet at Cushing by a couple of $ right now.

On-shore continental North American conventional and shale oil has the benefit of being able to be turned-down and turned back up almost immediately. It is the "just-in-time" supply. Most other oil sources, including SAGD, oil sands mining, off-shore, international on-shore can't be shut in or turned back on quickly.

Once again, this oil price crash is going to be far, far more damaging to the economies of countries that are highly dependent on oil production revenues and exports than it is to the USA. This is like a head shot to some of the OPEC nations.

Net-net, the USA economy, as a continuing large hydrocarbon energy consumer is going to benefit. It's also going to help China tremendously to recover from this economic recession.

[bpr]

Re: GRG 55 might be on to something

Western Canada Select down to $11.55.

Every bottom has a trap door.

[GRG55]

Re: GRG 55 might be on to something

It's an interesting world to say the least right now.

As I have posted in the past, the Arab Gulf States are the ultimate welfare societies. The Ruling Families (and the selected favored Merchant Families that support them) collect the income from the national economy. And then dole out what the Princes don't take for themselves (cars, jets, yatchs, villas in the south of France, properties in London and Geneva, hookers & blow) in the form of generous public housing, health care, food subsidies, free utilities, madrasah schools, mosques, and such. Understand these have been some of the fastest population growth locales on earth these past few decades, and large swaths of the populations are deliberately poorly educated and lack the skills to function in a modern, technology driven environment (hence the ongoing dependence on skilled professional labor to run their economies). Take away the benefits and there's going to be a big social backlash - large numbers of unmarried men with time on their hands is always a threat to any government (ask the Chinese Politburo). The only way to preempt problems as the cash available to be doled out dries up is to lock things down into a police state. After the Saudi announcement last Saturday about opening the oil taps, the concurrent arrests of senior Ruling Family members on charges of treason were the first marker that's where this is headed. Out of necessity. MbS is playing a high stakes, dangerous game at home. But then when you have the chutzpah to saw up journalists, arrest, detain and demand the resignation of a visiting Prime Minister (Saad Hariri) and host a weeks-long party for all your favourite cousins and friends at the Riyadh Ritz-Carlton, this all starts to look normal.

Contrast this with Russia, where the oligarchs and KGB alumni run the place, and cut up all the cash. Half the friggin' hospitals don't have running water. Putin does not risk having an internal problem like the Persian Gulf states and Kingdoms.

I don't think this has anything much to do with US shale oil. That's just getting caught in the cross-fire of Russia and Saudi a) being on opposite sides of the Iran and Syrian situations in the Middle East, and b) Russia believing (correctly imo) it can exert greater political influence in the Middle East by taking away more of the critically important Chinese and Western European energy market share from Saudi Arabia, thus severely compromising its income, from which it derives its external political influence given it lacks the military capabilities of Russia or the USA.

I think Saudi is going to lose this dog fight, and cry uncle first.

I do agree with you; this is not just an energy sector disruption. Large swaths of the US and global economy look like it's headed for a decadal fire sale.

People focus on the Saudi Arabia's allegedly low lifting costs to support the view it can drive oil prices down to extraordinarily low levels and wait it out.
It can't.


https://www.arabnews.com/node/1672946/saudi-arabia

May 11, 2020

04:45

Saudi Arabia suspending cost of living allowance, raising VAT to mitigate economic impact of COVID-19 crisis

RIYADH: Saudi Arabia is suspending the cost of living allowance and increasing the value-added tax (VAT) as part of measures to address the impact of the COVID-19 crisis, the Saudi Press Agency (SPA) reported on Monday.

“Cost of living allowance will be suspended as of June first, and the value added tax will be increased to 15% from 5% as of July first,” SPA said, citing statement of the Ministry of Finance.

Finance Minister Mohammed Al-Jadaan said the twin measures are part of efforts to shore up state finances, which have been battered by low oil prices and the coronavirus crisis.

Al-Jadaan warned last week that Saudi Arabia would have to take "strict and painful measures" to deal with the twin impact of coronavirus pandemic and falling world oil prices.

“We must reduce budget expenditures sharply,” Al-Jadaan said, adding that some government projects may be slowed down to reduce expenditure.

“Current actions taken to date to cut spending are not enough, and Saudi public finances will need more control and the journey ahead is long," he said.




https://www.reuters.com/article/us-s...-idUSKBN22H1XF

MAY 5, 2020 / 8:42 AM

Saudi foreign reserves slide as epidemic, oil volume war take toll

LONDON (Reuters) - Saudi Arabia’s decision to wage an oil volume war with Russia, which proved badly timed as it coincided with coronavirus lockdowns and tumbling crude demand, exacted a heavy toll on the kingdom’s finances.

Total foreign reserve assets fell by almost $24 billion in March, the largest one-month decline for at least 20 years, according to the latest official data from the kingdom’s central bank, the Saudi Arabian Monetary Authority (SAMA).

Reserve assets had fallen from a peak of $746 billion in August 2014 but until March had been steady at around $500 billion since the middle of 2017 (“Monthly bulletin”, Saudi Arabian Monetary Authority, April 28).

However, total reserves tumbled to just $473 billion at the end of March, the lowest for nine years, in a sign of the strain the volume war and the coronavirus epidemic imposed on the kingdom’s balance of payments.

Reserves have almost certainly fallen even further in April in line with a big drop in oil prices and reduction in export revenues as the volume war and epidemic worsened last month...



https://www.aljazeera.com/ajimpact/a...184301675.html

6 May 2020

Aramco reportedly close to inking $10bn deal with banks

Sources say Aramco could use some of the cash for dividend payments.




https://www.aljazeera.com/ajimpact/m...164252457.html

4 May 2020

Moody's devalues Saudi debt: Gulf distressed debt deals may rise

The credit ratings agency has cut its outlook for sovereigns and companies in the Arab world's biggest economy.

[shiny!]

Re: GRG 55 might be on to something

I can't imagine their citizens being too happy with these developments. How do you see this playing out?

[GRG55]

Re: GRG 55 might be on to something

I can't imagine their citizens being too happy with these developments. How do you see this playing out?

Same as always. Oil supply re-balances. Recession ends. Demand picks up. Excess inventory is worked off. Oil prices recover.
Won't be any different this time.

The arguments have been about who takes what amount of the hits with the re-balancing. Remember the Saudis blustering on about producing 12 million barrels per day? Saudi, incorrectly once again, assumed it could force the rest of the world to take a bigger share of the necessary reductions.

At the end of the day economics, security of supply and politics all play into the outcome.

Same old, same old.

Just out:

https://uk.reuters.com/article/globa...-idUKD5N2BW025

Saudi Arabia to slash June oil output by an extra 1 mln bpd - ministry

MAY 11, 2020 / 6:11 AM / UPDATED 38 MINUTES AGO

DUBAI, May 11 (Reuters) - A Saudi Arabian energy ministry official said on Monday that the ministry has directed national oil company Aramco to reduce its crude oil production for June by an extra voluntary amount of 1 million barrels per day, on top of the reduction already committed by the kingdom under the OPEC+ cut deal.

“This brings the total production cut that will be carried out by the Kingdom, to around 4.8 million barrels per day, from the April production level,’’ he said.

‘’Therefore, the kingdom’s production for June, after both its targeted and voluntary cuts, will be 7.492 million barrels per day,” he added.

[strittmatter]

Re: GRG 55 might be on to something

Ah ha. Interesting. Thanks.

[shiny!]

Re: GRG 55 might be on to something

But how will Saudi citizens react to the suspension of their COL allowance and a 10% increase in the VAT? I'm trying to undestand the temperament of their society? Is it mostly passive and/or supportive of the current regine or could something like this spark a flame there?

[GRG55]

Re: GRG 55 might be on to something

But how will Saudi citizens react to the suspension of their COL allowance and a 10% increase in the VAT? I'm trying to undestand the temperament of their society? Is it mostly passive and/or supportive of the current regine or could something like this spark a flame there?

No way to tell what will happen at this point.

It is not "one society". There's the now fractured House of Saud Ruling Family, the al-Wahhab descendents which dominate religious life in the Kingdom, the Shi'a majority in the oil rich Eastern Province, the powerful merchant families (such as the bin Laden construction group family) and a substantial constituency of young professionals (Saudi engineers, geoscientists, accountants, finance professionals, doctors, etc.).

It's a balancing act for MbS. We'll see how well he emulates one of the Flying Wallendas.

[jpatter666]

Re: GRG 55 might be on to something

No way to tell what will happen at this point.

It is not "one society". There's the now fractured House of Saud Ruling Family, the al-Wahhab descendents which dominate religious life in the Kingdom, the Shi'a majority in the oil rich Eastern Province, the powerful merchant families (such as the bin Laden construction group family) and a substantial constituency of young professionals (Saudi engineers, geoscientists, accountants, finance professionals, doctors, etc.).

It's a balancing act for MbS. We'll see how well he emulates one of the Flying Wallendas.

And *which* one.

[Mega]

Re: GRG 55 might be on to something

https://news.sky.com/story/coronavir...sures-11986588