Update on who will collapse first

A couple of followup comments about my long post pondering Who will break first, Saudi Arabia or the American shale oil industry.  I read Bruce Oksol’s comment on the article that drew my closest attention.

In his post at Million Dollar Way, Saudi Arabia Looking At Bankruptcy?, he recaps some comments he has pointed out before, which I will quote. Read the following to provide context for the article at the center of the above post.

Before going to the link, recall these items regarding Saudi Arabia:

  • the country has a huge under-funded desalination (and existential problem for the Saudis) program;
  • recently cancels a $9 billion solar energy program to pay for their desalination program;
  • recently completes two new in-country refineries with total capacity approaching 1 million bopd;
  • faces a deficit twice what it forecast, Saudi Arabia says it will go to the debt market for the first time in a decade;
  • President Obama explicitly states the US is no longer responsible for Saudi’s security;
  • the tea leaves clearly suggest it is US policy to move Iran to singular super-power status in the Mideast;
  • announces this past week that it will issue $27 billion in bonds;
  • has a shooting war in Yemen; terrorists on its borders;
  • a $35 billion, 5-year program to increase crude oil production announced in 2012, has failed; and,
  • it continues to give away its oil at $60/bbl (when it needs $100 oil to balance its budget).

Ponder the political and military pressure those factors create and in turn the financial pressure from each of the above.

Lots more reasons to place your bet on the US shale oil industry.

8/6 – Bloomberg – Saudi Reserves Drop for Fifth Straight Month to $664.4 Billion – Article I mentioned earlier said reserves were $672B while this article says in June reserves were $664B. That’s another $8B drop.

Article uses the word “hemorrhaging” in discussing the reserve amount and estimates another $22B drop in 2016. At anything approaching the current rate, I’ll guess the drop in 2016 will be a multiple of the $22B.

Reason I mention this article is that it claims Saudi Arabia will be borrowing $5.3B on Monday, 8/10. Previous article indicated they were testing the water with lenders.

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