from Follow the Money

Don’t cry for Saudi Arabia

September 4, 2008

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The recent fall in oil prices seems to have caused a wee bit of trouble at a few commodity hedge funds.

But it is important to keep the fall in perspective. If oil stays around $110 for the rest of the year, the sweet light stuff should average about $112-113 dollars in 2008, about $40 a barrel more than it averaged in 2007. If it slides to around $100, oil will still average close to $110 dollars this year, or almost $40 a barrel more than in 2007.

I did some very ballpark math to calculate the annual increase in oil export revenues associated with oil price moves since 1990. To keep everything simple, I assumed the big oil exporters exported a constant 40 mbd during the entire period. I know that is wrong, but I don’t have an "net oil exports of the big oil exporters by month" (or even by year) going back to 1990 readily available. It isn’t wildly off though, and it tells the story well. A $112 average oil prices means the oil exporters should have about $500 billion more than in 2007. That is probably a bit low, as I suspect net oil exporters of the big oil exporters are now a bit over 40 mbd (oil experts, please chime in!)

’oil-exports-1.JPG’

And just to be clear, despite the chart’s title, the chart shows the estimated change in oil export revenues for all oil exporters, not just the Saudis.

Incidentally, the oil exporters probably now need an oil price of around $70 a barrel to cover their import bill, so $500 billion plus isn’t a bad estimate for their combined current account surplus -- or for their official asset growth -- in 2008. I’ll be interested to see the IMF’s estimate of this in the WEO.

The Saudis don’t have a thing to worry about it oil stays at its current level. They can spend more at home and buy more assets abroad. And Abu Dhabi can continue its current spending (oops, investment) spree -- and make sure the world knows that Abu Dhabi, not Dubai, has the real cash. Like Landon Thomas, who recently wrote "Abu Dhabi has sometimes seemed jealous of Dubai’s ability to draw attention to itself," I get a sense that the al-Nahyan family got tired of seeing all the talk of big "Dubai" wealth funds . Abu Dhabi certainly hasn’t been trying to hide its wealth recently -- which is something of a change. It also calls into question why Abu Dhabi continues to avoid disclosing ADIA’s size. The argument that Abu Dhabi doesn’t want to attract too much attention doesn’t really cut it these days.

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