Intel Corp (INTC)

[Professor MD]

chipguy
Saudi production costs are still very low.

The Saudi King is in a desperate situation. He escaped the “Arab Spring” by maintaining the standard of living of his unemployable citizens and his enormous “Royal Family”. The article quoted below describes his “precarious position”.

Saudi Arabia put themselves in a precarious position: likely to post a deficit of nearly 20% of GDP for 2015
A report from the International Monetary Fund released August 17, projects that Saudi Arabia will likely post a fiscal deficit of 19.5% of GDP in 2015, compared to a deficit of 3% of GDP in 2014. The IMF anticipates that the deficit will decline after this year, but it will remain high over the medium-term.
Sources familiar with Saudi’s financial planning have indicated that Saudi Arabia is looking to cut 382 billion riyals ($102 billion), approximately 10%, in government spending this year in order to soften the blow from lower oil prices, reports Bloomberg. Many of the Saudi’s social programs are funded through oil revenue, making continued low prices politically unpalatable, and forcing the government to look for ways to continue supporting government-run programs.
Saudi Arabia has raised at least 35 billion riyals from local bond markets this year, issuing securities with a maturity over 12 months for the first time since 2007, but it has not been enough to stem the tide. With approximately 87% of the country’s revenue coming from oil, low oil prices will force the Kingdom to continue burning through its sovereign wealth fund. For comparison, just 1.6% of U.S. GDP comes from crude oil production
Khalid Alsweilem, a former official at the Saudi central bank and now at Harvard University, said the fiscal deficit must be covered almost dollar-for-dollar by drawing down reserves. “We are much more vulnerable,” said Alsweilem, commenting on the fact that Kuwait, Qatar and Abu Dhabi all have three times greater reserves per capita than Saudi Arabia. “That is why we are the fourth rated sovereign in the Gulf at AA-. We cannot afford to lose our cushion over the next two years.”
Saudi’s financial reserves peaked at $737 billion in August of 2014. They sat at $672 billion in May 2015, but with Brent below $45 per barrel, the Kingdom will need to spend at least $12 billion per month from its sovereign fund in order to support social spending.

Petrie’s take: Saudi won’t sell assets

Tom Petrie, chairman of Petrie Partners, said selling assets is not the most likely way Saudi Arabia will fund its social programs. “Conceivably, they have some stocks, but this is not the kind of environment you want to go into trying to raise big money from the stock market,” he said during an interview with Oil & Gas 360®. “I think they’re more likely to issue debt and cut back on their social programs.” The programs they will most likely target first will be the ones that do not put money into the hands of the populate, like infrastructure, Petrie said.

http://www.oilandgas360.com/saudi-market-therapy/