Cash is only part of the picture. Currency reserves of half a trillion and how much in other government holdings? a trillion? I don't think anyone knows for sure. They have half a trillion invested here (at least). This is all before they borrow one cent, which they can do because they have little debt.

And despite farming and exporting terrorism and being a human rights toilet, Saudis Arabia is not under economic sanction because they are our friend. Their economy is fine and so they can weather a drop in oil price in 10 different ways. They have over a trillion dollars before they need to borrow one red cent. They could live with 40 for a decade and be just fine is my guess.

With just oil maybe. But unlike other opec members, they don't need X price oil to balance their budget because they can do it in other ways. So you can't predict what the Saudis will do on the same basis as what other oil exporting countries would do. 60 oil will not cause them a bit of strain in the short of medium term while other members are under sanction, turmoil, and a greater degree of mismanagement.

Actually I have little interest in the Saudi financial position. I will say I think the Hose of Saud will eventually be overthrown. Other than that, what does it really matter in the long run? Any kind of opinion I have about oil prices I can back up with money in the financial markets. You can too.

I've spent a lot of time there and the economy is totally backwards. Youth unemployment is over 30% yet virtually all skilled or semi skilled labor is imported - paid for with oil revenue. The whole place is unimaginably inefficient, working as hard as they can to squander their good fortune.

Even the current war chest only covers 3 years of imports so cannot go on forever. And keep in mind that some portion of the hard currency reserves aren't a rainy day fund but are capital reserves needed to maintain the riyal peg vs the US dollar so really can't be sold.

The only reason in the world that anyone outside of OPEC gives a **** about the budgets of OPEC countries (and why there is some much speculation and information gathering about their budgets) is because people want to predict their reactions in situations like the current situation. People say things like like "oh they have to cut production now because their budgets can't handle X price". A lot of times the Saudis are lazily lumped in with other oil exporters when really they are in their own league in terms of flexibility.

So if you care about the price of oil you care about Saudis production and if you care about Saudis production you care about their financial position. Some people think the Saudis are trying to inflict punishment on their regional enemies here so there are several secondary concerns. I don't pretend to know exactly what they are thinking but I know it's not "oh no we're are going to go broke and get overthrown" AINEC.

The House of Saud isn't going anywhere. They have a stabilization strategy which is more multifaceted than most countries. They have the club and propaganda/thought control through religion. In fact the greater challenge to the ruling family comes from those, like Bin Laden, who don't think they are fundamentalist enough. Then they have money which they can hand out (and they have) if worse comes to worse. For a trump card they have the U.S. backing them up. Usually that support is thought of more as useful against regional rivals like Iran, but it could be useful against the domestic population as well. As long as the easy oil is there, they will be there.

True yet they still have miniscule debt. It's like, when you own something that valuable, even when you **** up royally (pun intended) you still end up doing as well as or better than other countries making the most of what they have.

Nobody has claimed in this thread that Saudi's have a debt problem. Keep ****ing that chicken though.

True, but if revenue plummets and cash reserves are depleted , adding the cost of debt service to the already strained budget puts pressure on them to cut welfare and provides an opening for domestic unrest.

This is exactly what happened in the post GW1 period, their debt went from practically zero to over 100% of GDP in a period of just a few years due to low oil prices in the late 90s. As domestic spending came under pressure, militants and unrest were able to gain traction.

Anyway, mainly just pointing out that the Saudis cannot go on like this indefinitely. They are as much of a basket case as any of the other Oil countries, just with a bigger cash cushion.

and Russia decides to put on a demonstration on just how quickly things can fall apart.

Ruble down 10% today alone. After spending $70BB in forex reserves to try to prop up the currency over the past few months.

Moscow then announces interest rates will increase from 10.5% to 17% after a middle of the night meeting. They had raised it 100 basis points just last Thursday.

and this is a country with very little USD denominated debt and huge forex reserves. Imagine what things look like in Venezuela and elsewhere.

and USD-RUB touched 80 and is still up over 70, reversing any gains from the huge interest rate hike. Ruble was at ~34 a year ago, goodbye Russian purchasing power. Next stop capital controls...


Peak is still here, right??

Yes, it is... very much so.

Not sure where you're getting "one quarter" from, as I quoted JP Morgan as claiming 40% of all HY energy risk. If you're gonna make counter claims, the very least you could do is support it with a link. Standard message board fare there.

In any event, you seem to have little regard for what that amount of default could do to related industries on the hook for dirty oil's viability.

You are right, I should have included links.

http://mobile.reuters.com/article/id...41212?irpc=932

http://www.zacks.com/stock/news/1574...-the-oil-crash

There you go. Also, you seem to think a default will mean zero recovery for these bond holders. You also seem to not understand the difference between cash flow break even for the shale wells and gaap break even. Do you? Do you see why that's important?

Jiggs, what would be short term indicators (< 5 years) that peak oil might NOT be occurring?

Your first link:

Those weaker credits account for about a quarter of the exploration and production companies in the BAML high-yield energy index,

doesn't really correlate to your broader claim... DUCY?

Your second link doesn't support your specific claim at all, and in fact highlights the problem:

Given the rising quantity of lower quality debt, this market is becoming more risky. Illiquidity further makes market more prone to steeper declines in times of stress

... among other passages.

Holy straw man!!! You "seem" to have real trouble focusing on what I've ever said.

No one said there would be zero recovery for your heroes in the filthiest oil industry game. Look, inevitable defaults aside, this is about maintaining increased global flow rates, of which the U.S. shale industry has accounted for almost all of that growth the past 5-7 years. You need every play to be healthy and cranking to keep it up. So if even a percentage of that specific unconventional output is affected (and it will be), you're looking at critical total liquids shortage and raised global tension ... that's because far-more efficient conventional production has already peaked and can't go any higher. The entire "peak oil isn't happening" theory rests upon ever-more unconventional crap oil from shale. When that debt-based ponzi scheme can't keep increasing production (as predicted 6 yrs ago), you guys are out of bullets. There are clear signs that the growth of the shale oil/gas industry has reached its ceiling.

As I've mentioned time and time again, those of you in the "no problem" camp not only have to show how the "shale revolution" can survive this price collapse enough to maintain flow rates (despite a 50-70% annual decline rate for each well)... but you also have to show that it can keep expanding the balloon and increase production on top of that. You've done a passable job bailing water to show how the existing industry can survive "for the time being," while ignoring the dire prospects of "growing" the industry amid these troubles.

The sober reality is that your heroes need the price to stay closer to $125-150 to maintain drilling expansion. And that's just not happening, because the global economy has already shown time and time again it can't afford prices over $100. This price crash reaffirms that limit once again.

And that's quite a paradox. And every time you guys spin one side of the paradox, you concede the other. And both ends spell peak oil.

"running faster just to stay in place" ...

The Surprising Data Behind Shale Oil

David Hughes, geoscientist and oil analyst who has studied the energy resources of Canada for nearly four decades, including 32 years with the Geological Survey of Canada as a scientist and research manager:

Let’s just take a play like the Bakken.: 45% annual field decline, sweet spots are getting to be drilled out. We know that they need to drill 1,500 wells a year just to keep production flat. But as you go into lower quality rock, the well quality in most of the play's extent is only about half of what it is in the sweet spot. If you have to rely on the lower quality part of the play you need 3,000 wells per year instead of 1,500 to offset the field decline. But the wells aren’t any cheaper. They cost the same amount to drill. To be profitable for producers, it's going to take a lot higher prices in order to make that happen. And you can go through play after play and see the same thing. We are drilling the best parts of the plays now and it is just going to get worse down the road. We are going to need higher and higher prices.

Those shale plays work fine in levered structures with oil in the $80-$100 range, not sure where $125-$150 is coming from.

Fair enough, I think that's a bearish view on production/CapEx required and the levered plays Ive looked at work at 80-100, but that's certainly one view.

.

Cut CAPEX and cut dividends, ez game. Again, microeconomic principles state that companies don't cease production immediately when their product becomes unprofitable. You didn't address samsonh's contention at all. You just made a baffle with bull **** post. Screaming peak oil in the middle of an oil glut is pretty loltastic.

The more I look into this collapse in oil prices I'm thinking that we're close to at the very least a short term bottom. I'm putting some money on it.

Interesting question!

Which means a cut in production. You've been following the discussion, yes?

LOL... So how long do you foresee them holding on, Cramer? And the next time around, provided prices rebound a bit, who's going to invest in their product? Who's gonna take on the risk again, as they all have to perpetually expand their number of well pads while getting less oil in return?

Nonetheless, some already are cutting production. Meanwhile, your entire "no problem" argument assumes a scenario that needs every last drop (and then some new drops) to be viable. My argument doesn't need 100% of companies to "cease production immediately."

Oh, you mean the one where he threw out a figure that's not specifically supported by the links he later provided? Mmm, yeah, addressed. We can get into a link war re: the contagion risk that 40% defaults of HY energy bonds would mean, but something tells me someone like you only adheres to the economic journalists that support your work-backwards "no problem" conclusion.

Though not nearly as loltastic as screaming that 3x as expensive, half as efficient oil from shale rock formations means peak oil isn't real. But good job pretending short term "glut" due to already weakened demand means there's long-term abundance.

Your argument is like cuttling the caloric intake of all active adults in half, and then pretending there's suddenly a "glut" of food.

* suddenly finding 3-4 brand new Saudi Arabias worth of onshore, shallow liquid crude formations at >32 API somewhere (anywhere) on God's green Earth. ... you know, like the kind we used to find every decade or so, but haven't in over 30 years.

There's not meaningful contagion risk from HY energy defaults, if you want to argue contagion risk at least focus on the sovereigns and dollar denominated EM debt. 4% defaults in HY spread over a couple of years is not systematic risk.