Is

Saudi Arabia

The New Venezuela? 

This Giant Welfare State is Running Out of Time

Saudi Arabia made the plea earlier this month in its monthly oil report. 

The report said “the collective efforts of all oil producers” would be needed to restore order to the global oil market. It added that this should be "not only for the benefit of the individual countries, but also for the general prosperity of the world economy." 

It’s also the largest producer in the Organization of the Petroleum Exporting Countries (OPEC), a cartel of 13 oil-producing countries. 

Like other OPEC countries, Saudi Arabia lives and dies by oil. The commodity makes up 87% of the country’s revenues. 

This was a great thing when the price of oil was high. Saudi Arabia was basically printing money. 

But that hasn’t been the case for years. 

You see, the price of oil peaked back in June 2014 at over $105 a barrel. It went on to plunge 75% before bottoming in February 2016. Today, it trades under $50. 

You see, Saudi Arabia is the world’s lowest-cost oil producer. Its oil companies can turn a profit at as low as $10 per barrel. That’s one-fifth of what oil trades for today. 

So what’s the problem? 

The problem is 

Saudi Arabia 

is one giant welfare state. 

But this scheme isn’t cheap. According to the International Monetary Fund (IMF), Saudi Arabia needs oil to trade north of $86 a barrel to balance its budget. 

Last year, it ran another $79 billion deficit.

After all, the Saudis had a firm grip on the global oil market for decades. If it wanted, it could raise the price of oil by slashing production. It also had the ability to drive the oil price lower by flooding the market with excess oil.

Those days are over. The United States now rules the global oil market, and it’s showing no mercy.

Unless this changes soon, Saudi Arabia is doomed.

In other words, we’re witnessing a seismic power shift in the global energy markets…one that could cause oil prices to plunge even lower. That would be bad news for many oil companies in the short term.

But it should also lead to one of the best buying opportunities we’ve seen in years.

DYI