EMEA News
Saudi Prediction of Oil Revenue Increases Points to Expectation of $60 Oil Average in 2017
Analysts are still debating whether the Organization of the Petroleum Exporting Countries' (OPEC) oil cutback will truly be the mechanism to rebalance the market given the current rising production rate of so many members, but Saudi Arabia at least stands to benefit significantly from the deal: the kingdom expects oil revenues to jump to 480 billion riyals ($128 billion) next year compared to 329 billion riyals ($87.7 billion) in 2016.
The 46 percent increase, calculated by Saudi's finance ministry, will be supposedly accompanied by non-oil revenue climbing to 212 billion riyals ($56.5 billion), or 6.5 percent.
These increases are significant in light of the kingdom's total projected revenue for this year: 528 billion riyals ($140.7 billion), which is less than half of what it collected in 2013 when oil traded above $100.
The numbers were part of Saudi Arabia's new budget released Thursday, which for the first time projected revenue and spending for the next four years with the goal of balancing the books by 2020.
And although some experts wonder if this is possible when such a high portion of the income over four years is supposed to come from non-oil sources, John Sfakianakis, director of economic research at the Gulf Research Center, said the oil revenue increase "is in line with the expectations by the authorities that the market is re-balancing higher, and is clearly a sign that oil prices are expected to average $60 per barrel next year."
Khalid Al-Falih, Saudi's energy minister, stresses that the budget is based on the assumption that global producers will cut output as promised.
The success of the kingdom's four year budget could be further bolstered if predictions made this week by Suhail Al Mazrouei, oil minister for the United Arab Emirates, prove accurate: he told reporters in Abu Dhabi that oil prices might rise even more if investors see proof that OPEC and other producers are fulfilling their cutback obligations.
He said, "When the market sees the agreement is being implemented, and we hope it will be an effective agreement that will be implemented, and when they see the reduced supply in the market, I am sure this will be positive" for prices.
To that end, he urged all OPEC members under the cutback agreement "to follow the steps of the Gulf states and the U.A.E. and advise the markets and buyers about the percentage of the cuts that they will make."
However, it's uncertain what effect a $60 average will have on other producers: a new report by Wood Mackenzie pegs $55 per barrel prices as the sweet spot required for companies to become cash flow positive in 2017; anything more might trigger the undesirable effect of U.S. shale production's further recovery, which in turn could compel OPEC and non-member countries to abandon their cutback efforts.
