Oil prices fall on Asian data, Saudi austerity plan

The International Monetary Fund (IMF) said that if Saudi Arabia raises its fuel prices, the country could save Dollars 17 billion annually.

As oil prices fall to their lowest level in 11 years, the Saudi government yesterday announced a budget with the most cautious oil price in 10 years despite it facing the problem of the current decline and volatility in oil prices by reducing its dependence on oil revenues.

Income for 2015 was 15 percent lower than projections and 42 percent less than in 2014, after oil prices fell by nearly two thirds since mid-2014 to below $40 a barrel.

Bloomberg News said Saudi’s 2016 budget is probably based on crude prices of about $29 a barrel, suggesting the oil powerhouse intends to stick to its policy of maintaining high output despite low prices.

The government said it projects expenditures of $224 billion (840 billion riyals) in 2016, roughly $5 billion (20 billion riyals) less than what the government projected in 2015. The company’s income and costs will rise at similar levels after the government cuts energy subsidies, according to statement to the Saudi bourse.

The finance ministry also said it will adjust subsidies for water, electricity, and petroleum products over the next five years. This is because it produces so much oil that it has the power move prices – Saudi Arabia is the largest country in the 13-member OPEC cartel of oil producers.

The kingdom announced projected revenues for the coming fiscal year of $137 billion (513 billion riyals), around $26 billion (95 billion riyals) less than the total for 2015. This year’s original budget plan envisaged revenues of 715 billion riyals.

The people of Saudi Arabia will now be subjected to higher utility costs as subsidies will be removed to decrease expenses.

The price of higher-grade unleaded petrol will rise to 0.90 riyals per litre from 0.60 riyals, a hike of 50%, and for lower-grade petrol to 0.75 riyals from 0.45 riyals per litre, a 67%.

The cabinet said the increase was in line with global energy prices.

One area where the government is not cutting back is defence and security, where it allocated $57 billion for 2016.

The kingdom withdrew more than $80bn this year from its reserves, which stood at $732bn at the end of 2014, and issued bonds worth about $20bn.