Middle East Shares Mixed, Saudi Stocks Ease After 2016 Budget

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 is the first under King Salman, who ascended to the throne in January, and an economic council dominated by son, Deputy Crown Prince Mohammed bin Salman. The subsidy cuts won’t have a “large effect” on people with low or middle income, he said.

Because of the severe drop in oil prices, revenue is down by 23% from the previous year.

At around 0700 GMT, US benchmark West Texas Intermediate for delivery in February was up 12 cents at $36.93 and Brent crude for February was trading six cents higher at $36.68. Saudi Arabia normally overspends its budget projections by around 20 percent.

Significant progress in economic diversification relies largely on policies put in place before the price shock, according to an International Monetary Fund study released in December 2014.

This year’s original budget plan envisaged SR715 billion of revenues.

The 2016 budget projects revenues at $137 billion, the lowest in six years, and spending at $224 billion, slightly below 2015 projections of $229 billion.

Spending for the year hit 975bn riyals, some 13 per cent more than forecast.

“The 2016 budget is the first budget in more than 10 years that is based on an oil price of less than $50 a barrel for Brent”.

Contracts used to bet whether Saudi Arabia will abandon its peg to the dollar climbed by the most in eight years after the world’s biggest oil exporter cut subsidies and spending for next year.

Saudi Arabia is trying to maintain its share of the global oil market rather than use its power in OPEC to curb United States producers.

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

“This budget also comes amid challenging worldwide and regional economic and financial conditions, namely a global economic slowdown in growth”, it said. Meanwhile, non-oil revenues rose 29 per cent to $43.6 billion.

“The Saudi budget… reinforced the “lower for longer” sentiment in that market”, said analyst Augustin Eden at traders Accendo Markets, in reference to OPEC’s Saudi-backed policy of pushing oil prices lower to hurt non-OPEC producers.

His appearance at the news conference with two other ministers, during which he shared his views on oil prices and market assessment, was seen as a possible signal he could be named oil minister when Naimi, 80, eventually retires. That’s less than the $56 per barrel priced into the projected 2015 budget.

It is expected that Saudi Arabia calculated the budget for the coming year based on an oil price of $37 per barrel whilst Jadwa Investment calculated the price to be $40 per barrel.