#548 – Saudi Arabia may go broke…

Saudi Arabia may go broke…

It has been awhile since we shared any news on the oil and gas industry, in particular fracking, with our readers. We just received the August 2015 IOGA [www.ioga.com]  (Illinois Oil and Gas Association) Bulletin, which highlights the goings-on in the oil and gas industry in Illinois, as well as nationally and internationally. This issue included an article entitled “Saudi Arabia may go broke before the US oil industry buckles”  by Ambrose Evans-Pritchard, International Business Editor of The Daily Telegraph in the United Kingdom. Below are just a few highlights we took away from the article:

* The contract price of US crude oil for delivery in December 2020 is currently $62.05
* The North American rig-count has dropped to 664 from 1,608 in October (2014) but output still rose to a 43-year high of 9.6 million barrels/day in June (2015)
* (Shale) gas prices have collapsed from $8 to $2.78 since 2009, and the number of gas rigs has dropped 1,200 to 209. Yet output has risen by 30 percent over that period
* Saudi Arabia…relies on oil for 90 percent of its budget revenues. There is no other industry to speak of a full fifty years after the oil bonanza began.
* The “fiscal break-even price” is $106 (per barrel in Saudi Arabia)
* Saudi Arabia’s (cash) reserves peaked at $737 billion in August 2014. They dropped to $672 billion in May 2015. At current (oil) prices they are falling by at least $12 billion a month
* OPEC have left matters too late (held price too high), though there is little they could have done to combat the advances of American technology. In hindsight, it was a strategic error to hold prices so high, for so long, allowing shale frackers – and the solar industry – to come of age.

Evans-Pritchard concludes by saying, “We may yet find that the US oil industry has greater staying power than the rickety political edifice behind OPEC.”

Falling oil prices have been a boon for U.S. manufacturers, leading some to increase production, while allowing some to re-shore jobs and products from some former low-cost locations, such as China. Stay tuned…