Saudi to stick with oil output despite low prices

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.

The kingdom reduced energy subsidies and intends to cut spending in 2016 to 840 billion riyals ($224 billion) from 975 billion riyals this year.

Saudi economic growth is set to slow further in 2016 after the OPEC heavyweight announced record deficits due to the slump in oil prices, an economic report said today.

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

When oil prices steeply dropped in 1986, Saudi Arabia ran a budget deficit for some 15 years, significantly increasing public and external debt until oil prices finally recovered in the 2000s.

Revenues next year are forecast at SR514 billion, down from SR608 billion in 2015, when oil revenues accounted for 73 percent of the total.

The UK, long the preferred home of Saudi royal property investment, has seen a spate of sales over the past few years as the falling price oil has brought the days of the high-spending Middle Eastern spending to an end. The reforms in the budget may be just the start of a multi-year period of fiscal austerity, if oil prices stay low; the government also said it plans to privatise some assets, which could temporarily suck liquidity from the market.

Almost half of this year’s spending, or around $120 billion (450 billion riyals), went to wages, salaries and allowances. But the stock had already jumped 9.9 percent on Monday in anticipation of such a measure, and the company said on Tuesday that it foresaw little impact on its bottom line as higher electricity prices would be offset by higher fuel costs.

So while Saudi Arabia might not be as accustomed to words like “austerity” and “budget cuts” as European nations, it has decades to get used to them. A quarter of that will be allocated to military and security purposes.

“The oil sector will be a drag especially with no expected increase in crude production”, NCB said in a note.

The Tadawul All-Shares Index (TASI) fell by 3.1 percent minutes after opening but recovered slightly to close down 0.9 percent at 6,930.60 points.