Long ago, there was a bedtime story told to the children of the Saudi Royal Family when they couldn’t fall asleep at night…
The tale warned of overseas customers someday no longer needing them to feed their addiction to crude oil.
Mind you, this story wasn’t frightening years ago — mostly because U.S. oil production was in a seemingly irreversible downward spiral.
And at the time, each diminishing barrel of available oil in the lower 48 states meant another riyal in the royal coffers.
But then, to the utter terror of young Saudi royals, an unlikely nightmare started to become a reality…
Now young princes are waking up in the middle of the night in a cold sweat.
Saudi Oil Chains
Sooner or later, we’re going to realize that the Saudis need us much more than we need them.
Consider this situation for a moment…
Not a day passes that we don’t read headlines predicting U.S. energy independence, or sharing the news of some election-seeking mud-flinger on Capitol Hill claiming we need to cast off our Saudi oil chains.
It makes sense, considering the U.S. dug its own oil grave, consuming upwards of 19 million barrels of petroleum products per day.
In May, more than 1.4 million barrels of crude flowed into the U.S. from Saudi supertankers — an amount that has grown every year since 2009. And each year, without fail, we line the pockets of the Saudi Royal Family with billions of dollars.
But a closer look at the situation reveals our roles are reversed.
It isn’t the Saudis holding the leash.
First, a snapshot of OPEC’s oil export revenues, broken down by member:
As you can clearly see, the Saudis hold all the cards when it comes to OPEC’s oil wealth, raking in $311 billion last year. That’s more than triple the amount of the next highest earner, the United Arab Emirates.
That Saudi oil revenue, however, accounts for over 80% of the government’s annual budget.
And that, dear reader, will be their downfall.
After a very profitable year in 2012, Saudi Arabia is going on a bit of a spending spree. We got a hint of this late last year when the government increased its 2013 spending budget by roughly $219 billion.
Take a moment and understand what’s at stake here…
The Saudi King is taking major steps to avoid the same kind of uprising seen in other countries dotting the Middle East and North Africa, and he’s doing it with what comes natural to most politicians: bribery. (At least, that’s what it looked like when he announced a massive $500 billion social welfare program to those Saudi citizens not born inside the walls of a palace.)
Considering how much of that social spending is dependent on the country’s oil revenue, you can see how terrified those in power are of losing one of their best customers.
In the past, there wasn’t much cause for concern since U.S. production was on the fritz. That’s far from the case today.
Nightmares Become Reality
If the thought of Saudi oil demand heading skyward is painful for Saudi princes, you can bet watching U.S. oil production surge only serves as salt in their wounds.
And although the usual response from the Saudis is to shrug off the U.S. tight oil boom, we get a true glimpse of their fears every once in a while.
Like last week, for instance, when a Saudi billionaire publicly penned his concerns over the matter, stating that the shale oil coming online in North America will force Saudi Arabia to lower its production target of 15 million barrels per day. He also happened to mention that 92% of Saudi Arabia’s government budget relied on oil revenue.
What has him so scared?
It’s likely the 7.3 million barrels of crude pumped from U.S. oil wells in May — a 40% increase over levels in May 2008.
If anyone can see an oil boom for what it is, it’s the Saudis.
And yet there’s one distinction we can make between the ongoing tight oil boom in the United States and the early days of the Saudi oil industry…
Back then, the so-called supermajors were reaping the benefits from the almost endless amount of crude trapped beneath the sand dunes.
It wasn’t until the 1950s that the Saudi government finally realized the oil wealth it held, and started to increase its control over the country’s oil resources. And when Saudi Aramco was finally bought out by the government in 1988, it forever shut out foreign oil companies.
Right now, in the early stages of the developing our oil-rich shale formations, it isn’t the massive oil corporations like ExxonMobil that have the advantage…
Instead, the most lucrative gains are made from the smaller, lesser-known players in the U.S. oil patch.
These companies have years of growth still ahead — like these three oil stocks that will profit handsomely from the very oil boom the Saudi princes fear most.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
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