Lessons from Saudi Arabia’s 2014-2015 flooding of market

Saudi Arabia held oil price at artificial low levels

  • curbing Russian involvement in Syria
  • Collateral damage:
    • small shale Oil companies
      • required USD$80/ barrel to breakeven operations
      • 35 shale oil companies filed for chapter 11
      • caught in precarious position of being over-leveraged and unprofitable for extensive periods of time
    • Large oil companyBP
      • trading at close to Net Book Value for more than a year (2016-2017)
      • price still recovering after 2 years (2018)
  • Countries can hold an industry suppressed longer than impacted companies can stay liquid
  • large cap companies will trade for extensive periods at close to net book value. Might be a good buy when markets turn around
  • If industry is directly affected, cut losses and bail

Related

Leave a Reply