Inside Financial Markets

Saudi Arabia Seen by Former Adviser Assuming $80 Oil

saudi arabSaudi Arabia Seen by Former Adviser Assuming $80 Oil

Saudi Arabia’s 2015 budget is probably assuming an oil price of $80 a barrel, and will be seen as a sign of confidence in the market, according to a former economic adviser to the country’s government.

The assumption is down from $103 a barrel for this year, John Sfakianakis, who used to be chief economic adviser to Saudi Arabia’s Ministry of Finance, said by phone after the budget was announced yesterday. The world’s biggest crude exporter set 2015 spending at 860 billion riyals ($229 billion) with revenue falling to 715 billion riyals from 1.046 trillion riyals in 2014, the Finance Ministry said. Oil accounted for 89 percent of its 2014 revenue.

Brent oil tumbled into a bear market this year as the U.S. pumped the most crude in more than three decades, leading the United Arab Emirates Energy Minister Suhail Al Mazrouei to urge producers from outside the Organization of Petroleum Exporting Countries to trim output. Iraq, the second-biggest producer in OPEC, said this week its 2015 budget is based on $60 oil.

“Everyone was expecting to see a budget built on a price around $60 but that would have sent a negative message to the oil market,” Sfakianakis said from Riyadh. “With a fiscal break even price of $80 a barrel, the government is sending a message to the market that we are expecting to see a rebound in oil prices.” Sfakianakis is Middle East director at London-based Ashmore Group Plc.

Boosting Demand

Saudi Arabia is confident that crude prices will rebound with global economic growth boosting demand as high-cost producers cut back, Oil Minister Ali Al-Naimi said on Dec. 21. “I’m 100 percent sure prices will go up, they have no other direction but to go up.”

Brent fell 2.4 percent on Dec. 24 to $60.24 a barrel after a government report showed U.S. crude inventories increased the most in two months. Stockpiles climbed 7.27 million barrels in the week ended Dec. 19 as imports surged, the Energy Information Administration said.

Saudi Arabia has 265 billion barrels of oil reserves, with production of 9.65 million barrels a day in November, according to data compiled by Bloomberg. Iraq, the second-biggest producer, was pumping 3.35 million barrels.

OPEC’s decision to maintain output at its Nov. 27 meeting in Vienna fanned speculation that Saudi Arabia and other members want North American shale drillers and other producers outside the group to be the first to cut production. Saudi Arabia and Iran this month cut the official price levels of their main light crude grades for sale to Asia to the lowest in at least 14 years.

Surging oil prices over the past decade helped Saudi Arabia boost its net foreign assets to a record 2.9 trillion riyals in October, according to central bank data.

Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)