Oil Prices Subdued In Asia

In order to address the situation, the Gulf kingdom has set the price of 95 octane gasoline at 0.90 riyals ($0.24) per litre up from 0.60 riyals per litre – a hike of 40 percent.

Adjustments in electricity and water prices are expected to take effect on January 11, setting the pace for several other GCC countries set to implement utility subsidy reforms next year. Oil revenue will make up about 70 per cent of the budget in 2016, down from 73 per cent in 2015 and 89 per cent in the previous year.

Next year’s budget projects spending of SR840 billion, down from SR975 billion actually spent this year.

Oil prices firmed on Tuesday but held near recent multi-year lows as dealers weighed Saudi Arabia’s budget in a market dogged by stubborn oversupply and tepid data.

Saudi Arabia’s King Salman (centre) attends a session of Saudi Shura Council in Riyadh, December 23, 2015.

And with crude prices expected to remain low, Saudi authorities also projected a shortfall of $87 billion in the 2016 budget, the third year in a row with a shortfall.

Fahad Alturki, chief economist and head of research at Jadwa Investment, told Arab News: “Despite the global environment of lower oil prices, the Kingdom has maintained a high level of spending in the 2016 fiscal budget”. Government revenues came in at $162 billion, 15% lower than forecasts, while expenses were almost $260 billion, exceeding estimates by 13%.

Saudi Arabia has so far withstood the cheap oil era by dipping into its massive reserves, but officials are looking for more sustainable sources of revenue, including raising petrol, electricity and water prices. That’s less than the $56 per barrel priced into the projected 2015 budget.

“Stratfor added that Saudi Arabia could modify its output in the second half of 2016 after assessing the price impact of Iranian oil and evaluating declining commodity production in the United States”.

Saudi Arabia is counting the cost of a policy of allowing the oil price to drop as it seeks to drive less competitive producers such as U.S. shale oil fields out of business. Non-oil revenue increased from SR 126.8 billion in 2014 by SR 36.7 billion to SR 163.5 billion; an increase of 29 per cent compared to 2014, indicating that the country is slowly peeling away from its hydrocarbons-based economy and diversifying into other sectors.

“It has enough reserves that will last several years in the future even it draws $100bn a year”.

Saudi Arabia’s Finance Ministry announced the record deficit – which is believed to have been created as a result of plunging oil prices – on Monday.

The budget deficit has been the highest in the history of Saudi Arabia, which is now the world’s largest oil exporter, but fell short of earlier projections.