Saudi Economic Moves Indicate Oil Prices Will Stay Low Into 2016

Due to these low prices, 9 out of 13 OPEC member states including Saudi Arabia, Iraq, Iran and Kuwait announced deficits in their budgets for next year making it impossible for some countries to continue spending in light of oil prices fluctuating around $36 a barrel.

Saudi Arabia forecast revenue to decline to 513.8 billion riyals ($137 billion) in 2016 from 608 billion riyals this year.

Next year’s budget suggests Saudi Arabia is basing its revenue on a price of $26 a barrel for export crude, if production remains at 10.2 million barrels per day, said Fahad Alturki, chief economist and head of research at Saudi-based Jadwa Investment. However, the government has also put aside $49 billion (183 billion riyals) in discretionary spending to use on infrastructure projects if oil prices improve.

Saudi Arabia is better equipped to wait out now low oil prices than other producers, Saudi Aramco chairman Khalid Al-Falih said, adding that he expected a more stable market “some time in 2016”.

State revenue from oil will be 73 percent in 2015, compared with 89 percent in the previous year, according to a statement posted on the finance ministry website earlier Monday.

A global oil price rout will bring an end to the era of Saudi Arabian largesse, as crude prices have tumbled to 11-year lows.

Authorities moved quickly after the budget figures were released, with the official SPA news agency reporting the increase of petrol prices and saying the government would also cut subsidies for electricity, water, diesel and kerosene.

Riyadh also projected a shortfall of $87 billion in next year’s budget, the first since King Salman took over the country in January.

“We don’t see any changes to Saudi Arabia’s oil policy in the context of oil production”, said Energy Aspects analyst Amrita Sen.

The revisions include raising the price of 91 octane gasoline to 0.75 riyals a litre from 0.45 riyals and increasing the price of 95 octane gasoline to 0.90 riyals from 0.60 riyals. The broadest measure of money supply, M3, grew 5.7 percent from 3.9 percent.

Public Debt Government bonds were issued to the local financial market during the current fiscal year, totaling SR 98 billion. The 2016 budget plan aims to cut that to 326 billion riyals, reducing pressure on Riyadh to pay its bills by liquidating assets held overseas.