Friday, April 29, 2016

Update In Saudi Arabia's Reserve Asset Base -- Courtesy Of John Kemp -- April 29, 2016

In 2015, Saudi Arabia set its 2016 budget based on $60 oil. Prior to that, as far as we know, Saudi's budget had been based on $100 oil for years. Running the numbers, suggests there is no way "we" will average $60-oil for calendar year 2016. To get there, oil will have to be at $80 this autumn.

For Saudi, $60 oil is not much better than $40 oil, and long-term, Saudi can't survive on $60 oil.

Some takeaways from the graph above:
  • 27 months of data are shown; Saudi's reserve assets decreased in all but six of those months
  • but even with $110 oil for eight months (2014), the kingdom showed outright losses in two of those months, and minimal increases in most of the other months; during this period Saudi consistently said it "liked" $100-oil but in fact they needed a higher price; in June, 2014, at prices > $110 (and trending upward), the kingdom showed a negative growth in reserve assets
  • in the past 14 months, the kingdom has lost almost $150 billion in reserve assets
  • there's more to reserve asset management than just the price of oil; in January, 2015, despite an average price of Brent lower than it was later in the year, the kingdom showed a slight increase; for the entire rest of the year, significant decreases
  • look where John Kemp has set the "x" axis: at $100 oil; in 2017, it will be interesting to see if the graph is re-set to reflect $60 oil
  • in February, 2015, when average price of Brent was $60, the kingdom lost $20 billion; based on most recent losses, it does suggest that the kingdom set $60/bbl as the basis for their 2016 budget
An IPO of 5% of a 2-trillion-dollar company will provide a one-time infusion of $100 billion cash. 

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