Saudi Arabia’s Long Oil Game

Schumpeter called it creative destruction. The US’ rich became super-rich using it during the Great Depression. The Russian businessmen became oligarchs in this way. And now several oil-rich sovereign funds are using the same strategy to re-invent themselves and super-grow their shares funds.
For sure the dive of the oil price at below 30 USD per crude barrel is hurting all the major oil producers. The 100-200 billion USD revenues loss due to oil price decreases is spread among all the major producers – states which massively prop their budgets on it, as well as their populations. All of them are now in ink red.
But I think some of these states are playing a long game – and try to turn the crash into their advantage. Reuters reported that the sovereign funds of some of these nations have already sold 150 billion USD of their assets / shares at depressed prices. These sovereign funds will most likely unload another 75 billion USD of shares at the end of March 2020, in order to maintain their fund allocation quotas.
There might be an exception though. I think that some OPEC states are trying to finance their cash needs via oil, at almost any price. This is not a bad strategy. With share prices so low, any share that can be hold on the fund 1 month more will produce really nice returns. So whilst some OPEC nations must be all in, lacking other revenue sources, all some other sovereign funds need to do is to hold out as long as possible.
If you think about it, this is not a bad strategy. When the coronavirus crisis will end and workers will return to the companies, share prices will start rising. And those funds who bought shares from all sectors right now (beginning of April) will do very well in Q4. My money would be on 2, maybe 3 nations sovereign funds: Norway, Saudi Arabia and maybe the thrifty Singapore. Let us see…

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