Saudi can outlast others in oil market: Al-Falih

Saudi Arabia has raised domestic energy prices by as much as 40 percent after the world’s leading oil producer announced a record $98bn budget deficit on Monday citing rock-bottom global petroleum prices.

Oil prices struggled in subdued Asian trade Tuesday on tepid economic data from Japan and indications that major crude exporter Saudi Arabia’s 2016 budget is based on prices staying low.

It comes after the International Monetary Fund warned in October that Riyadh would run out of money within five years if it did not tighten its belt.

Saudi Arabia, now grappling with the impact of low oil prices, announced a 2016 budget comprising spending cuts, subsidy overhauls, and taxation, in order to meet its financial targets. Revenue from oil sales in 2015 will be 444.5 billion riyals down by 23 percent from 2014, according to the finance ministry statement.

Prices will also rise for other fuels including natural gas, diesel and kerosene and for heavily subsidised electricity and water, but details were not immediately available.

National oil conglomerate Aramco said on Twitter (Xetra: A1W6XZ – news) it was immediately closing petrol stations until midnight on Monday, when it will resume sales at new prices. He promised to diversify the kingdom’s revenues beyond oil, which now accounts for 90 per cent of the government’s income.

Nevertheless, the budget plan suggested authorities were starting to get to grips with the fiscal deficit, and this could cheer investors not only in Saudi Arabia but in the rest of the Gulf, which is linked to the Saudi market and economy.

The reality check has seen the domestic oil price rise from 0.60 riyal to 0.98 riyal a litre (36¢), which is still around a quarter the price paid at the bowser by most Australian motorists.

A quarter of next year’s spending, or $57 billion, has been allocated for defence and security expenditures, the ministry said.

The Saudi’s cut but it’s not what you think.

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. “The non-oil sector will endure the ripple effects of an oil-dependent economy and is estimated to grow by 3.5 per cent, which will not suffice to offset the lack of growth in the oil sector”.