Saudi Arabia Update: The Winner Takes It All -- The Early Morning Edition -- May 12, 2020

If you have time to read only one article on Saudi Arabia today, read this article over at Zero Hedge; skip the post below. 

This is getting quite fascinating.

Back in 2014 when Saudi opened the oil spigots to crush US shale, they kept at it for almost two years before they finally gave up. The data is not yet all in, the fat lady has not yet sung, this is far from over, but at the moment the tea leaves suggest that after less than a month of trying to do the same, Saudi Arabia is in deep trouble and back-tracking as fast as it can.

There is also, interestingly, but not surprisingly, a race by two opposing sides to put their spin on this. It appears the US shale operators are reporting that they have seen the worst, they have weathered the storm, and they are starting to re-open wells that were shut in just weeks ago. On the other side of the Atlantic, we are getting stories that this is hogwash, that, in fact, Saudi will do just fine, and that it is the US shale operators that are in deep, deep trouble.

From this side of the Atlantic, or "in our corner":

• shale driller already starting to reopen wells, Energy Transfer says; 
• Russia's oil output down to 9.45 million bpd on May 1 - 11, sources; 
• EOG maintains its dividend;
• NOG has a good quarter;

From the other side of the Atlantic, or "in our opponent's corner":

• US refiners killed the golden goose: diesel margins;
• CLR halted June oil sales while awaiting higher prices: CEO;

What is the best way to determine which side is correct? It's really quite simple. Watch what Trump does. Not what he says but what he actually does. And watch what Harold Hamm does.

For me, everything suggests Saudi Arabia is in deep doo-doo.

Before this all happened, it was generally agreed that Saudi Arabia would be a net importer of crude oil by 2025, or thereabouts. I always thought that at some point in the near future, let's say 2025, or thereabouts, Saudi Arabia would be in huge economic trouble. That is the reason why Prince MbS came up with Vision 2030 to diversity his and his country's portfolio.

It is obvious that "2025" arrived five years early for Saudi Arabia. Vision 2030 is dead.

The headlines coming out of Saudi Arabia are startling:

• Aramco is alone among Big Oil to keep media out of AGMs (annual general meetings), Bloomberg;
• Saudi Aramco's first-quarter profit slides 25% as the collapse in oil prices bites; 
• Saudi Aramco maintains its generous dividend payout but it represents the company's entire cash flow;
• Saudi Aramco may cut government payout amid oil plunge; could cut payments to Saudi government by half; 
• Saudi Aramco seeking to re-negotiate / re-structure / call foul on SABIC deal;
• Saudi Aramco had a negative "gearing" of minus 0.2% at the end of 2019, but given the new realities, Aramco may need to borrow this year and could see its "gearing" -- net debt divided by balance sheet capital -- at levels of other oil majors; 
• Saudi Arabia is running out of money; ZeroHedge;
• oil price war puts entire kingdom of Saudi Arabia at risk; (writer pushing his agenda; his book)

The winner takes it all:

The Winner Takes It All, ABBA