Because the Saudi's have the lowest marginal cost of production in the world by a mile. They can produce at $10 a barrel and can sell oil for the next 50 years. It's free money. Where are you getting that their business is failing? The issue the Saudi Kingdom has is with their social state. They have to fund entitlements. Sure, they want oil at higher prices because they need it higher to fund their social programs. But investors don't care about that. They are buying a stream of their cash flows and they are the best cash flows in the world. There is a not a business in north america that has their cash flow stream. Not Apple, not GOOGL, not AMZN.
Crude is screwed, man.
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Because the Saudi's have the lowest marginal cost of production in the world by a mile. They can produce at $10 a barrel and can sell oil for the next 50 years. It's free money. Where are you getting that their business is failing? The issue the Saudi Kingdom has is with their social state. They have to fund entitlements. Sure, they want oil at higher prices because they need it higher to fund their social programs. But investors don't care about that. They are buying a stream of their cash flows and they are the best cash flows in the world. There is a not a business in north america that has their cash flow stream. Not Apple, not GOOGL, not AMZN.
maybe they now have a different long-term vision?
and found better ways to work their wealth in more diversified and sustainable businesses
while reducing their oil-dependency
they are actively looking more investments opportunities these days
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ps: it's too early to judge Aramco IPO, we don't have the data yet
how far it is from the 2T mark..?
I guess this all depends on how they price the IPO though. If it is priced based on oil staying where it is now, with a cash flow based on what they output now, well, I imagine that going forward, both of these will drop. And since stocks mostly only care about future earning potential, if the trend is down, then no matter how much they still bring in every month, I don't think the stock would do well, because it clearly isn't going to initially sell for such a discount that your return will beat out most other investments.
The trend is NOT down. The price of oil will go parabolic with time. The marginal cost to drill that oil will go higher and higher. Eventually it will be uneconomical to drill. At some point I imagine oil will be 500+. But we won't be able to extract it even at that price.
I will be the first to admit that I only look at the front month of what interests me. But I have no doubt that forward spreads have some informational value. Since you evidently know a lot more about this sort of thing than I do, let me ask you: Do forward spreads have useful "predictive" value for trading purposes? Serious question.
Yes. Nobody in the energy industry looks at the front month. All modeling is done on the curves. The front month is noise. The market fundamentals are expressed in the curve and yes, they offer predictive value as they incentivize producers to either produce or store and they allow for the proper temporal allocation of resources across time.
Things aren't great for Saudi Arabia. Yes, their production costs are very limited. On the other hand, OPEC has been losing market share consistently over time. Shale and improved technology has brought a number of new producers online. OPEC flooded the market and drove prices down to try to bankrupt those producers. It worked somewhat, but it also inflicted pain on the OPEC side. Now, they've released the choke hold. Members of OPEC nations themselves have even said that $55-$60 is a sweet spot for them. Too much higher and there'll be more competition from the US and Canada shale producers among others.
ARAMCO could have been IPO'd at any time right? So it begs the question, why now. The Saudis understand the predicament they're in, and if you can get more revenue coming in, why not take it? If all was well in Kingdom I don't think you'd see this move. As for why anyone would buy the IPO, I don't know the details of the offering but I imagine some are looking at it more as a value play than a growth play unlike many IPOs.
ARAMCO could have been IPO'd at any time right? So it begs the question, why now. The Saudis understand the predicament they're in, and if you can get more revenue coming in, why not take it? If all was well in Kingdom I don't think you'd see this move. As for why anyone would buy the IPO, I don't know the details of the offering but I imagine some are looking at it more as a value play than a growth play unlike many IPOs.
I'm talking about needing the spreads as a speculative shorter-term trader. I ask because I don't recall references to spreads in the ACD thread. I don't follow the thread, and only read a post or two every few months or so, so if it is regularly or periodically mentioned, then I stand corrected. Also, I don't recall Fisher ever even mentioning the spread component in his book on ACD. But I don't trade using ACD, so I'm more of just a passerby.
I talk about spreads non-stop on the ACD thread. And yes, they are important for a short term speculative trader.