Bets soar on whether Saudi Arabia will abandon dollar peg

Reports that key petroleum exporter Saudi Arabia will cut fuel and utility subsidies in response to a record budget deficit to cope with plunging oil prices also spooked the market.

But Opec’s members have been divided over the strategy. The media outlet OilPrice.com and various others, including Business Insider, have pointed out that the lower the price goes, the less oil those rival countries can produce.

Saudi Arabia said Wednesday that it would continue to “satisfy” additional demand for oil even as crude futures fell on data showing US stockpiles growing.

A year ago, Saudi Prince Alwaleed Bin Talal Al Saud said: “If we reduce our production some other countries will fill that gap”.

Saudi Arabia on Monday unveiled spending cuts in its 2016 budget, subsidy reforms and a call for privatisations to rein in a yawning deficit caused by the prolonged period of low oil prices. The ministry expects to generate roughly $137 billion next year, a 15 percent decrease from the $162 billion earned in 2015.

The Saudi government unleashed plans this week for a $48.7 billion stimulus package to support projects designated as national priorities, saying support was needed because of “excessive” volatility in crude oil prices.

The country’s leadership, painfully reliant on oil, have failed to diversify the Saudi economy.

“If oil has entered a down cycle then belt-tightening will prevail”.

Saudi Arabia’s stock market was generally little changed early on Monday as traders cautiously awaited the release of the kingdom’s 2016 state budget, while Egypt recouped some of previous session’s losses.

As one of one of a handful of Saudi figures whose views are closely watched by traders and analysts for any insight into the kingdom’s oil thinking, Falih has always been considered a possible successor to Saudi Oil Minister Ali al-Naimi. There will also be a review of prices of heavily-subsidised power and fuel.

Crude oil is now trading at its lowest prices since 2004. It chose instead to defend market share against higher-cost-rivals.

The trend of lower energy prices is tied directly to supply and demand, and with suppliers looking to keep production elevated, USO could decline further.

The International Monetary Fund has warned the Saudi government that continued spending would deplete those reserves within five years.