In the two oil price wars it launched without the slightest success – the first from 2014 to 2016 and the second from early March to the end of April this year – one might think , Saudi Arabia may have learned key lessons about the dangers of being drawn into such a war again.
But judging from a series of statements last week, Saudi Arabia has not learned any lessons and has It is possible to launch the exact same oil price war in the same way as the previous two times, inevitably suffering losses again and leading to the exact same catastrophic consequences for it and other OPEC members.
The “mysterious” remarks of Saudi oil industry executives
The core problem in Saudi Arabia is that the country’s top government has collectively deceived itself about key figures associated with the country’s oil industry, who are crucial to the running of the entire country. effect. These hallucinations apparently went unchecked by any of the senior foreign advisers who reaped huge fees and trading profits for their own banks from various Saudi actions, most notably the oil price war.
This is a perfect example of “the emperor’s new clothes” in the truest sense, and it applies not only to Crown Prince Mohammed bin Salman , MbS), also applies to all senior figures associated with the Saudi oil sector. One of the most obvious examples of this is Amin Nasser, CEO of Saudi oil giant Saudi Aramco. He said last week that Saudi Aramco planned to increase its maximum sustained production capacity from 12.1 million barrels per day to 13 million barrels per day, confusing those with even a passing understanding of global oil markets.
It is reported that Saudi Aramco’s financial data for the second quarter and first half of 2020 show that the profit in the second quarter was US$6.6 billion (approximately 46 billion yuan), a sharp drop of 71.6% from the first quarter. %. Despite a sharp decline in profits, Saudi Aramco still maintained its huge single-quarter dividend of $18.75 billion. Nasser said the reason for keeping the dividend unchanged is that he predicts that demand for crude oil will gradually recover.
Previously, Saudi Energy Minister Prince Aziz also stated that crude oil demand will rebound to 97% of pre-epidemic levels by the end of 2020.
With the negative demand effects of the pandemic and the output of the oil price war hanging in the balance, this gesture makes little sense in a world already flooded with oil, but the Saudi oil industry No. 3 figures (second only to the Crown Prince and the Saudi Energy Minister) are extremely misleading.
Saudi Arabia has been confusing the concepts of “capacity” and “production”
This is therefore in line with the collective consensus in the oil market since the 2014-2016 oil price war that nothing Saudi Arabia says about its oil industry can be considered true without extensive additional fact-checking.
First of all, the term “maximum sustained capacity” is a term used repeatedly by Saudi Arabia since the disaster of the first oil price war to obscure the actual level of crude oil reserves. There are two long-term illusions related to the actual level of spare capacity.
Before the oil price war in 2014-2016, Saudi Arabia claimed that its idle production capacity was 2-2.5 million barrels per day. This suggests that – given the widely accepted (but also erroneous) belief – Saudi production over the years was actually 10 million barrels per day (from 1973 to 2020, the region’s average production was just over 8.162 million barrels per day). day) – it has the ability to increase its production to about 12.5 million barrels per day if needed.
On the contrary, since then, Saudi Arabia has tried to obfuscate this spare capacity through semantics. Senior Saudi officials were talking about “capacity” and “supply to the market” rather than “output” or “production,” terms that have very different meanings. “Capacity” (which for Saudi Arabia is synonymous with “supply to market”) refers to Saudi Arabia’s utilization of crude oil supplies stored in warehouses at any given time, and the amount that can be deducted from contracts and reused for these stored supplies. It can also refer to the clandestine purchase of oil from other supplying countries (especially Iraq during the last oil price war) through brokers in the spot market, and then passing off their own oil supply (or “capacity”). For example, in the supply shortage after the attack on the Saudi refinery in September 2019, the production capacity and supply to the market mentioned by the Saudi Energy Minister are completely different concepts from the actual wellhead production.
In fact, after the attack on Saudi Arabia in September 2019, the market expected that it might take several months for Saudi Arabia to fully resume production due to the lack of key components, but it took less than a month. , Saudi Arabia said it had restored supply, which also became a factor that confused the market at that time.
Saudi Arabia’s oil reserves are a mystery, but the factors behind it It is oil reserves that determine Saudi Arabia’s say in the oil industry
Saudi Arabia tries to hide its actual production and…The reason for the excess capacity figure is that oil has been the only real basis of Saudi geopolitical power since its discovery in the late 1930s, which is why it relies on crude oil reserves. Specifically, in early 1989, Saudi Arabia claimed proven oil reserves of 170 billion barrels, but just a year later, and without the discovery of any major new oil fields, the official reserve estimate had somehow grown by 51.2% , reaching 257 billion barrels. Shortly thereafter it increased to just over 266 billion barrels and continued to increase slightly until 2017 to just over 268 billion barrels. No new major oil fields were discovered. What the actual reserves are, that number depends on the market. Who to believe.
At the same time, as mentioned earlier, from the beginning of 1973 to the beginning of 2020, Saudi Arabia produced an average of 8.162 million barrels of crude oil per day, totaling more than 2.979 billion barrels of crude oil per year. During this period, The total amount of oil extracted from the ground is as high as 137.04 billion barrels of crude oil. If we look at the data from 1989, reserves have basically bottomed out. But according to the latest 268 billion barrels, Saudi Arabia’s oil exports will continue for a long time, which is enough to ensure its influence in the oil industry.
Given the broader public recognition that the core numbers on which Saudi Arabia’s remaining geopolitical and economic power is based are essentially nonsense, Aramco’s The share price may be viewed as fragile. However, Crown Prince Salman absolutely does not want to lose his personal credibility – at least in Saudi Arabia – by having Aramco’s full IPO be seen as a failure, so few stock buyers will lose a lot. To eventually sell the 1.5% stake (originally 5%), Saudi banks were “encouraged” to provide loans to retail customers at a 2:1 ratio for every riyal invested in Saudi Aramco (while The average leverage ratio of loans is capped at 1:1). In addition, after the sovereign wealth funds of neighboring countries are also “encouraged” to participate in the issuance, the IPO’s international advisory bank can also retain the remaining issuance there.
Now in addition to this leverage, Aramco has assured this small group of investors that it will meet the minimum $75 billion in dividends, which are being forced to cash out to secure the sale of its 1.5% stake in the company. With Aramco’s share price now closely tied to Crown Prince Salman’s stature at home, Aramco has little choice despite last week’s announcement that Aramco’s net profits plunged 73.4% in the second quarter of this year. Ironically, this is all because the Saudis have launched yet another oil price war, destroying the U.S. shale industry by causing prices to plummet through overproduction at a time when demand was already devastated by the pandemic.
Summary: Saudi Arabia may force U.S. crude oil out of the market through an oil price war to ensure its position
Saudi Arabia’s oil reserves determine the valuation of Saudi Aramco, which is also an important task during the term of the Saudi Crown Prince. Saudi Arabia’s efforts to express that its production capacity is as high as 13 million barrels per day are actually trying to give the market an illusion to ensure the valuation of Saudi Aramco.
But how much Saudi Arabia’s actual production is is an unknown mystery. In the absence of new oil fields discovered in Saudi Arabia, Saudi Arabia’s proven crude oil reserves continue to increase, which is surprising. Surprising, but at least it is enough to support the current share price of Saudi Aramco.
However, as U.S. shale oil continues to squeeze Saudi Arabia’s market share, this has led to Saudi Arabia’s voice in the oil market declining. More importantly, if Saudi Arabia’s actual reserves In fact, it is the level of 1989. As Saudi Arabia’s oil reserves further decline, Saudi Arabia’s voice will further weaken. This will be a fatal blow to Saudi Aramco’s stock price. For Saudi Arabia, which relies on Saudi Aramco to raise funds for economic transformation, , this is unacceptable.
So Saudi Arabia can only take a high profile and threaten to continue to expand production capacity to continue to compete for market share with U.S. crude oil to cope with the pressure from U.S. crude oil manufacturers. At the same time, the best way for Saudi Arabia is to kick out U.S. crude oil manufacturers so that it can continue to secretly import from Iraq and other countries to increase its production capacity. However, how long this can last is unknown, but in the short term, This needs to be maintained at least until Vision 2030. </p
