RE:RE:RE:RE:Saudi Arabia shuts down 50% its oil production, drone attackA few points:
1- This idea that $60, $70 or even $100 oil would plunge the world into chaos is wrong. We had such prices for many years with an economy much weaker and people income lower. Granted if we get $100 overnight that would be a shock and restrain other spending but, reality is that people can afford higher gasoline prices than current.
This entitlement factor that we have seen under Trump that they should have gasoline for free is absurd. What Americans have done with higher income and lower gasoline prices is to buy SUV's vs smaller cars. However, since SUV's are now as efficient as a Civic used to be 10-12 years ago, it is about the same amount spent on gasoline/year while their income has gone up. So yes they can afford to pay more than $2 U.S./gallon without wrecking the economy.
2- Saudi Aramco's IPO is now once again not happening. Valuation is certainly negatively impacted by this event. The Saudis are not doing well with a budget bleeding red ink and need this money. Lost production is also bad news despite likely higher price received on inventory and remaining production.
3- Trump and Macron should have their head examined to entertain meeting with Iran on September 23 at the UN. They are the ones giving the weapons to Yemen, training them and likely telling them what to do. They were also cut with their pants down with a secret nuclear facility. You may also recall that ballistic missiles that mysteriously exploded on its launch pad in Iran a week or two ago.
As I said before, they simply cannot be trusted and any agreement without regime change means them having the bomb eventually and all the consequences.
4- In a way, this is not good for the oil price longer term. U.S. shale was definitely on the way to slow down. Now we may see higher production if the price increases into the $60's. I doubt that their capex budget will change much if we only see a short term spike but, that could change in 2020. However, they still have to deal with a very significant amount of debt maturities so who knows? The treadmill is also very intense at 35% decline rate of U.S. onshore and likely closer to 50% for fast growth production area such as the Permian.
Short of a conflict in the Middle East, this event will likely mean some price spike and a return of some risk premium. We may also see the abandoning of this idea of Iranian oil returning to market which has really hurt pricing since Macron idea and then Bolton being fired. However, it is hard to assess how fundamentals will shake-out due to U.S. shale if price goes up too high?