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Saudi Arabia: Canary in the oil glut coal mine

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Saudi Arabia: Canary in the oil glut coal mine

Unread postby C8 » Wed 17 Feb 2016, 17:10:45

Sound familiar?

Young Saudis See Cushy Jobs Vanish Along With Nation’s Oil Wealth

http://www.nytimes.com/2016/02/17/world ... .html?_r=0

RIYADH, Saudi Arabia — In pressed white robes and clutching crisp résumés, young Saudi men packed a massive hall at a university in the capital city this month to wait in long lines to pitch themselves to employers.

It was one of three job fairs in Riyadh in two weeks, and the high attendance was fueled in part by fear among the younger generation of what a future of cheap oil will mean in a country where oil is everything.

For decades, the royal family has used the kingdom’s immense oil wealth to lavish benefits on its people, including free education and medical care, generous energy subsidies and well-paid (and often undemanding) government jobs. No one paid taxes, and if political rights were not part of the equation, that was fine with most people.

But the drop in oil prices to below $30 a barrel from more than $100 a barrel in June 2014 means that the old math no longer works. Low oil prices have knocked a chunk out of the government budget and now pose a threat to the unwritten social contract that has long underpinned life in the kingdom, the Arab world’s largest economy and a key American ally.

The shift is already echoing through the economy, with government projects delayed, spending limits imposed on ministries and high-level discussions about measures long considered impossible, like imposing taxes and selling shares of Saudi Aramco, the state-run oil giant that is estimated to be the world’s most valuable company.

The proposal announced on Tuesday by the oil ministers of Saudi Arabia, Russia, Qatar and Venezuela to freeze output levels is one attempt to stabilize world oil prices, but it remained uncertain how effective it would be if other countries, like Iran and Iraq, declined to follow suit.

For younger Saudis — 70 percent of the population is under 30 — the oil shock has meant a lowering of expectations as they face the likelihood that they will have to work harder than their parents, enjoy less job security and receive fewer perks.

“For the older generation, it was easier,” said Abdulrahman Alkhelaifi, 20, during a break from his job at McDonald’s. “They’d get out of university and get a government job. Now you need an advanced degree.”

Of his generation, he said, “The weight is on our necks.”

It is hard to overstate the importance of oil in the development of modern Saudi Arabia. In decades, it rocketed a poor, mostly rural country to affluence, with most of its 21 million citizens now living in cities festooned with skyscrapers and streets filled with S.U.V.s. Oil wealth also allowed the ruling Al Saud family to maintain its grip on power, wield clout abroad through checkbook diplomacy and invest billions of dollars in promoting an austere interpretation of Islam around the world.

The oil boom over the past decade helped all of this, and was good for Saudis at home. Household incomes rose, and the number of men and women pursuing higher education multiplied. But the fat years left the economy poorly structured, economists say: 90 percent of government revenues are from oil; 70 percent of working Saudis are employed by the government; and even the private sector remains heavily dependent on government spending.

Nor did advances in education create a large professional class or inculcate a culture of hard work. Most of the country’s engineers and health care workers are foreign, and many government employees vacate their offices midafternoon, or earlier.

But with oil revenues crashing and the numbers of young people reaching the work force growing by the day, those jobs have become harder to get as the government cuts costs and pushes Saudis toward the private sector, where job security and salaries are lower on average.

“There is an issue with the sustainability of the economic model in Saudi Arabia, and the oil price can be seen as a wake-up call,” said Fahad Alturki, chief economist at Jadwa Investment in Riyadh.

Saudi Arabia still has room to maneuver, he said, thanks to large cash reserves, low public debt and lots of new infrastructure that can aid economic growth.

But the generational differences are clear.

One woman who recently earned a Ph.D. in a medicine-related field in the United States said that her father had been tracked into the military, where he got training abroad, free housing, medical care and schooling for his children. When her mother finished her degree in Arabic, she immediately got a job near her house — and a cash bonus from the state, just for graduating.

Their daughter has struggled to find work, despite being better educated and fluent in English. Her husband, also educated in the United States, is also unemployed, and they live with her family.

“My parents had great opportunities,” she said, requesting anonymity so as not to hinder her job search. “They provided well and we had a comfortable life, so I always thought it would be the same for us.”

These economic stresses come at a time of chaos in the Middle East and of generational change in the royal family.

Spearheading economic policy is Prince Mohammed bin Salman, whose father, King Salman, passed over older and more experienced princes to put the 30-year-old in charge of many of the country’s most important affairs, stirring private anger among some other royals.

Prince Mohammed, who is also the defense minister and second in line to the throne, has launched a costly war in Yemen and talks about radical changes to the economy, like raising fuel prices, imposing taxes on undeveloped land and some consumer goods, and privatizing state-run companies.

But details on implementation are scarce, causing uncertainty over many issues like what it will cost to fill a gas tank or power a factory in five years. That has made it hard for businesses to plan for the future, which further undermines the sputtering economy.

At the same time, Saudis are not accustomed to the government taking bold, fast action. Change tends to be introduced incrementally. That cultural trait is now complicating the need to move fast to meet the economic and demographic challenges.

A Saudi executive in the construction industry said that change was needed, but that moving too fast could hurt businesses.

“It has to be done and I am with it, but you can’t change decades’ worth of problems in a few years,” he said, speaking on the condition of anonymity so as not to jeopardize his business interests. “No way.”

Economists say that at least 250,000 young Saudis enter the job market every year, and that making them effective members of the work force is a major challenge.

The glut of graduates was clear at the job fair, where most applicants had come from large public universities that often fail to give students the language and technical skills employers want. Most of those interviewed had never had a job before and said their fathers worked for the government. While some thought private companies offered better experience, many wanted the perks of a government job.

“It’s a good experience, but there is no rest and no job security,” said Ali al-Ariyani, 24, who worked at a private hospital and wanted a change. “The days are long and you can’t even go out to smoke.”

At a separate location for women, many applicants complained that their degrees had not given them the skills, like fluency with computers, that employers want. One group of women had earned degrees in microbiology only to learn that they lacked the required licenses for hospital jobs.

“Our main issue is that our university did not prepare us for the job market,” said Khuloud al-Khateeb, 23, adding that many hospitals preferred to hire foreigners for lower salaries.

In recent years, the government has pushed for greater Saudi employment, penalizing companies with few Saudi employees. Many employers hate the program, saying it forces them to swell their payrolls with people who contribute little.

Even companies that have hired lots of Saudis have often had to rely on significant social engineering to get them working.

Saudis made up one-third of the crew at a Riyadh McDonald’s on a recent morning, manning the drive-up window and cash register and making fries.

“Is this spicy?” one yelled to a colleague. “One large fries, please!”

While they do the same work as foreigners, they earn much more. Salaries for foreign crew start at $320 a month, while Saudis get $1,460, part of which is subsidized by the government.

The company also gives Saudis more flexibility and has created fast-track programs to move them into management.

Four Saudi workers gathered in a break room said they liked their jobs but worried that they would not be as successful as their fathers, all of whom worked for the government. They knew the government had less money to employ citizens, which meant their generation would have to work harder.

“The government is good, but our generation is spoiled,” said Ahmed Mohammed, 21. “Everyone wants a government job.”

His colleagues agreed. “Everyone wants to sit at home and get paid,” Mr. Alkhelaifi said.

Sheikha al-Dosary contributed reporting.
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby Plantagenet » Wed 17 Feb 2016, 17:49:56

KSA should just reclassify all those young men looking for work as "discouraged workers" and stop worrying about them.

KSA's numbers would look a lot better then. :)
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby pstarr » Wed 17 Feb 2016, 18:12:10

Plantagenet wrote:KSA should just reclassify all those young men looking for work as "discouraged workers" and stop worrying about them.

KSA's numbers would look a lot better then. :)

You mean like Obama has?
/sarc
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby ROCKMAN » Wed 17 Feb 2016, 23:38:34

FYI: for those worrying about them poor Saudis: current GDP per capita is about the same as it was in 2005. Which isn't to say the party won't eventually grind to devastating halt. But they ain't there yet.
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby evilgenius » Tue 23 Feb 2016, 12:34:48

I work as an independent contractor in the US, alongside several Muslims from various countries. One of them, from Jordan, told me about a conspiracy theory the other day. He said that he believes that the Kingdom of Saudi Arabia is in cahoots with the US. They are trying to shipwreck the Russian economy. To be fair, at times he goes on like he believes this, and then at times he doesn't.

There appears to me to be a whole network of conspiracies at work in the Arabic speaking world. This is only one of them. He has mentioned others which, incidentally, run counter to this one. What I take away from this is that their conspiracy nutjobs are as crazy as our conspiracy nutjobs.

The danger of conspiratorial thinking is not that it might be true, though, but how it poisons people's capacity for rational thought. Pretty soon the truth sounds like nothing more than a competing story line to those who listen too closely. Then it really does become a matter of who does what for whom, and how recently they have done it.

Both the Chinese and the Saudis are in the same precarious place when it comes to their own people. Neither can afford for them to become restive on any kind of large scale, especially not in the manner that hunger can promote that. As much as I would like to see a more truly democratic Saudi Arabia I'm not certain that uprising is necessarily the way to achieve it. In fact, it may not even be a likely outcome following such a thing. I wonder what the statistics are on the kinds of revolutions that bored and highly excitable educated youth prefer to pull off?
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby pstarr » Tue 23 Feb 2016, 12:49:58

evilgenius, your Muslim buddy's theory does seem outlandish on the face of it: Saudi Arabia can not afford to bankrupt itself with overproduction and dangerously low oil income. However his paranoia is not misplaced. Isn't this precisely what occurred back in the early 1980's when Saudi Arabia suddenly inflated its reserves in order to produce more oil. This was on orders of President Reagan. It crushed the Russian oil economy and ended the Soviet Union.
/sarc
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby evilgenius » Wed 24 Feb 2016, 11:04:22

pstarr wrote:evilgenius, your Muslim buddy's theory does seem outlandish on the face of it: Saudi Arabia can not afford to bankrupt itself with overproduction and dangerously low oil income. However his paranoia is not misplaced. Isn't this precisely what occurred back in the early 1980's when Saudi Arabia suddenly inflated its reserves in order to produce more oil. This was on orders of President Reagan. It crushed the Russian oil economy and ended the Soviet Union.


You just reminded me how important the price of oil always has been to the American economy. When Reagan did that It made the price of oil per barrel pretty cheap, but it was still important what it was relative to other costs. According to your income level you could still find yourself complaining about the price at the pump, although it was nearly nothing in today's dollars. If you were somehow tied to white collar work and you felt like it made a difference to get a break on the price you might use the extra money to buy things. If you were a blue collar worker you might have done the same. I recall a resurgence in the sale of big automobiles. Entrepreneurs, however, who had to watch costs, got to see it as making more money.

That entrepreneurial spirit pervaded the housing market based economy in so many ways in the run up to 2007-8. We should never forget that it was $5 plus per gallon gasoline that actually tanked the economy. The entrepreneurs who had become so much of a percentage of what the economy was made of simply passed a threshold beyond which they could no longer participate. Something seems to have changed because these cheap gas prices are not bringing about the desired economic stimulus. Maybe Americans are gun shy and don't trust the cheap prices to remain? Maybe, in order for entrepreneurs to place their bets, they have to rely upon more than the seeming whim of the Saudis in their fight against US frackers? After all, the fracking industry appears to have already crumpled. It's only a matter of time, and then what? People need more confidence than that before most of them will go out and purchase a big truck, that takes years to pay off, that might help them make some money, for instance.

Yeah, the conspiracy theories I've heard are kinda strange, some of them. Others sound just like the 'New World Order' nutjobs who hold sway over the airwaves over here. When things aren't going so well people eat that s**t up with a spoon. When things are going well you might run across the odd book or two at a garage sale which, when you look at it for a second, sounds totally crazy and out of place. Based on the conspiracy yardstick, I'd have to say whatever economic ills are happening are definitely global.
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby ennui2 » Wed 24 Feb 2016, 11:15:14

evilgenius wrote:We should never forget that it was $5 plus per gallon gasoline that actually tanked the economy.


It never got to $5 and that isn't what crashed the economy.

Image
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby pstarr » Wed 24 Feb 2016, 11:59:43

Okay it Mos, you are correct it was $4 that tanked the economy. But that is nothing to do with the thread : Saudi Arabia was struggling with oil at $80 barrel (because excess oil lifting costs and capex had drained its oil economy) and is now perhaps collapsing at $35. :?

(* note: Mos, even the intended point of your chart is meaningless. Do you know what pretty colors and those REALLY BIG $numbers on the chart refer to? Here's a hint: the total dollar value of the instrument, not the amount of the reset.

Meanwhile during the time frame of the meaningless chart that extra $2.00/gallon in gasoline cost the American consumer $365 billion each and every year of that reset. Most of the money was lost to the American economy and sent overseas. Oil broke us, not random speculators.)
/sarc
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby evilgenius » Wed 24 Feb 2016, 15:20:40

ennui2 wrote:
evilgenius wrote:We should never forget that it was $5 plus per gallon gasoline that actually tanked the economy.


It never got to $5 and that isn't what crashed the economy.

Image


You can say that it never got to $5 where you lived, or even nationally. I paid something close to $5.50 one day and 3 days later it was under $1.40, at the same station. I remember the tension, and how for weeks I drove the highway nearly every day and no one was speeding. They were trying to conserve gas. I was too. The pressure was getting to people. The price of gas was something they couldn't control, but were desperate to try to meet. Without fuel they couldn't keep working.

I see what you mean by blaming their debt, but you aren't thinking at the level of boots on the ground. People were juggling their payments. As long as they could keep working they would have some kind of income to try and manage their debt. People are creative that way. Gas just kept climbing, as if there really was a little extra somewhere to pay for it. Then the price got so high that there simply wasn't. It's pretty hard to drive around and make money in the F-350 if the tank is empty. Once their backs were broken, and the cash flow stopped, it didn't matter that the stations reacted so quickly to bring the price back down. They needed that help when the difficult choices were being made, not after.
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby Outcast_Searcher » Wed 24 Feb 2016, 16:15:57

pstarr wrote:Meanwhile during the time frame of the meaningless chart that extra $2.00/gallon in gasoline cost the American consumer $365 billion each and every year of that reset. Most of the money was lost to the American economy and sent overseas. Oil broke us, not random speculators.)

According to the credible sources like economists, the global housing bust which hit the global banking system was the primary factor causing the 2008-2009 deep recession. (But let's never admit THAT, since this is a peak oil site.) https://en.wikipedia.org/wiki/Financial ... E2%80%9308

Denying that is about as credible as claiming current low prices are because globally consumers can't afford oil products at about a THIRD of what they cost in the 2010-2014 period, even though the global economy has continued to improve.
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby pstarr » Wed 24 Feb 2016, 16:26:12

So you are saying the $365 billion stolen from the economy every year by the evil oil companies had nothing to do with the housing bust?
/sarc
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby AdamB » Wed 24 Feb 2016, 17:09:14

pstarr wrote:Okay it Mos, you are correct it was $4 that tanked the economy.


Yeah, that isn't what the chart said either.

Some of us paid less during the $4/gal period because we collected econoboxes to commute in, and paid less for gasoline overall, even with a doubling in price. This thing economists like to call "substitution", in the form of substituting a more efficient car for a less efficient one, or "conservation", which was those of us who did this using less because of it.

In either case, it didn't even affect my budget. But that isn't how the housing bubble worked, and that is why it, and not the moderate price of fuel, caused the 2008 disaster.
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby AdamB » Wed 24 Feb 2016, 17:09:58

pstarr wrote:So you are saying the $365 billion stolen from the economy every year by the evil oil companies had nothing to do with the housing bust?


Are you a bot? :?:
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby evilgenius » Wed 24 Feb 2016, 17:49:38

AdamB wrote:
pstarr wrote:Okay it Mos, you are correct it was $4 that tanked the economy.


Yeah, that isn't what the chart said either.

Some of us paid less during the $4/gal period because we collected econoboxes to commute in, and paid less for gasoline overall, even with a doubling in price. This thing economists like to call "substitution", in the form of substituting a more efficient car for a less efficient one, or "conservation", which was those of us who did this using less because of it.

In either case, it didn't even affect my budget. But that isn't how the housing bubble worked, and that is why it, and not the moderate price of fuel, caused the 2008 disaster.


Do you remember how fuel efficient used cars went way up in price during the fuel price run up? If you worked in a job that wasn't related to housing you could probably absorb that. You had an income stream that was steady. The marginally significant people who were the hewers of wood and drawers of water for the construction industry couldn't work out of the back of a Civic, though. The best they could do was to try and keep working, at whatever there was. We should not forget how many men of working age had been drawn into construction by then either, and organized their lives in commitment to it. In the years running up to the crisis I had met chefs, accountants, etc. People had gone into it from all walks of life because it was paying so well. It did require that commitment, though. They were into that lifestyle for tools, at the very least, and probably didn't own a single fuel efficient vehicle on average.
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby pstarr » Wed 24 Feb 2016, 18:27:14

AdamB wrote:
pstarr wrote:So you are saying the $365 billion stolen from the economy every year by the evil oil companies had nothing to do with the housing bust?


Are you a bot? :?:

No. A human posted a simple question, to wit: What happened to the $1trillion the United States sent Arab NOC's during the runup to $147 oil. You are not still arguing that the speculators hid it under there Aerilon chairs? Or ate it? If so, they are bastards :-x
/sarc
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby ennui2 » Wed 24 Feb 2016, 19:16:12

evilgenius wrote:I see what you mean by blaming their debt, but you aren't thinking at the level of boots on the ground.


I've heard this argument ad nauseum. The extra gas expenses per month was small in comparison to the extras the ARM resets suddenly added to their mortgage payments. So expensive gas was a problem, but not the primary cause of the economy keeling over.
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Re: Saudi Arabia: Canary in the oil glut coal mine

Unread postby evilgenius » Thu 25 Feb 2016, 15:12:06

ennui2 wrote:
evilgenius wrote:I see what you mean by blaming their debt, but you aren't thinking at the level of boots on the ground.


I've heard this argument ad nauseum. The extra gas expenses per month was small in comparison to the extras the ARM resets suddenly added to their mortgage payments. So expensive gas was a problem, but not the primary cause of the economy keeling over.


Ad nauseum, huh. I respect where you are coming from. I don't deny that the monthly struggle that people had to face was largely formed out of debt. It was going to go over at some point. The micro economics of the situation, however, doesn't reveal a tie between the monthly cost of making payments and the ability to earn an income.

During the housing run up gasoline was a direct cost of doing business for almost everyone involved in construction. When it was cheap it was nominal, a cost but just another small one on a list. Facing the resets, however, and also needing to take low gas mileage vehicles around in an effort to make any kind of money, they couldn't survive.

I'm talking marginal expenses here which grew to absurd levels. I'm making a nod to the way in the US where there has always been a dearth of a safety net support system, but a strong system under which entrepreneurs could go out and find a way. Cheap gas was part of that way.

We have never taxed gas to the point of the Europeans because we don't want to finance their kind of support systems. The lack of that kind of tax burden often revealed ways for people to make a living. The high prices in the gas price run up eliminated those opportunities at the same time as people were facing other expenses. The loss of those opportunities eliminated the chance of making payments. You can't do that when the most you can make in a day is $100, let's say, which is a pay cut but by itself still manageable, and it cost you $80 in gas to make that $100. You might if it only cost $60. At some point it becomes Abraham arguing to spare Sodom.

Incidentally, the same thing is going on again, right now. The economy is re-balancing in a very dangerous way. It is becoming full of Uber and Lyft drivers. There are so many of them that the price per ride they can receive is beginning to come down. Even though this is occurring the numbers of people who are taking to this way of earning is still increasing. It could well rise to achieve the same kind of imbalance that we saw when so many people, then it was mostly men but now it is both sexes, piled into the construction industry. All it would need would be $3.50 plus gas to bury many of those people. If that happened, of course, the price of gas would not be the thing that actually broke them, you can already see that. It would be things along the line of too much debt again, company store car debt along with other debt and probably high rent over ownership related expenses this time. No doubt the economy under which such a high price per gallon came about would also constrain the demand for rides as well. But I've never been talking about those big obvious reasons, but the marginal things because people tend to go as far as they can with something that they have committed to, until they can't go any farther. Sometimes they find a way.

And tying things back to Saudi Arabia, the current adjustments being made, Uber and Lyft not being the only ones, do rely upon cheap gasoline in order for people to pull them off. It isn't that cheap gas is the most prominent part of the equations these people make when they consider whether they want to commit to things either. It is more that people tend to borrow clear up to whatever they are making, without considering what would happen to them if things changed. The thinking is no different than knowing you have a balloon payment due sometime, but that is then and this is now. They will deal with it when it comes. They may find a way. Cross your fingers on the Saudis.
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Shadows picked up by satellites suggest Saudi Arabia underre

Unread postby AdamB » Tue 09 Jan 2018, 20:45:57

Saudi Arabia reported falling oil reserves last year and agreed as part of OPEC to extend production cuts into 2018. LONDON — Satellite imagery of two of Saudi Arabia's largest oil refineries suggests the kingdom may have underreported its oil stores in the first half of 2017. Satellite images gathered by the tech startup Bird.i suggest the level of crude oil held in two major Saudi refineries, Ras Tanura and Yanbu, increased last year from January to June. The kingdom's official figures show supplies as having declined amid a commitment to reduce supply in the face of low prices. Bird.i collects and analyzes satellite, drone, and airborne images from numerous sources, some of which are captured in monochrome and some in full color. The technology allows the fullness of oil tanks to be estimated according to the shadows cast by tanks' floating


Shadows picked up by satellites suggest Saudi Arabia underreported its oil stores last year
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