[D.V.]

Saudi Arabia is facing a debacle on two fronts, first the collapse of oil prices and a potential decline in Riyal against the US$. While the cash/spot value of the Riyal remains stable, futures markets is painting a different story. Check it out here;
http://www.telegraph.co.uk/finance/economics/12071761/Saudi-riyal-in-danger-as-oil-war-escalates.html
It would put stresses on Saudi Cash reserves if the Riyal starts to sell off. Saudi cash reserves were around 0.8 Trillion US$, circa early to middle of 2015. They are burning through around 100-140 billion of this cash per year. Yes, they have enough cash reserves to sustain a burn rate of 100-140 billion per year on top of what they earn from selling oil. It will be interesting to see when they feel the need to cut petroleum production and raise prices. I am sure, they are selling US $ and buying the Riyal as I write this, to hold the value of the Riyal where it is, for now. There are estimates that Saudi oil can be produced at US 0.25 $ per barrel. While that may be true, the Saudi oil barrel price is much more dependent on their social security outlays than what they can extract out of mother earth. Exact estimates are hard to find, but the social security outlay of Saudi government would require the barrel price to be north of US $ 40, by certain estimates. It is an interesting experiment (akin to selling GM cars for half the price, in order to bankrupt their rivals), that we are all watching. Happy new year to all reading this.

[D.V.]

I am hopeful this platform would turn out to be a forum for serious educational discussions and education about finance and economics with participation from like minded people. Thanks for starting this.

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