Al-Falih: Crude Prices Will Increase "Tangibly" in 2017

Friday December 23, 2016

Khalid Al-Falih, energy minister for Saudi Arabia who earlier this year suggested additional oil production cuts may be required as well as the reductions under the Organization of the Petroleum Exporting Countries' (OPEC) cutback deal, says they are no longer necessary because prices will recover in 2017.

At a ceremony to announce the kingdom's annual budget in Riyadh, Al-Falih stated, "I'm very optimistic that next year will see economic recovery and a recovery of oil markets"; he predicted crude will increase "tangibly" next year and fall somewhere between $50 and $100 per barrel in coming years.

He added that the proposed additional production cuts were intended to "nudge along" the rebalancing process.

The energy minister reiterated his confidence that all OPEC member and non-member countries will adhere to their cutback commitments, pointing out that "There is a high degree of transparency now in terms of production levels, export and tankers movements; there are also many parties that monitor oil" – all of which he believes will make compliance easier.

Al-Falih is placing a lot of faith in 2017 being a banner year not only for the OPEC agreement, but also for the budget that comes on the heels of his kingdom reducing a huge deficit caused by the low oil prices: the first-ever four year blueprint calls for increased government spending (to 890 billion riyals, or $237.2 billion), to bolster economic growth.

It also forecasts a big jump in oil revenues – although analysts say it's unclear how the latter will be achieved.

Similarly, while Al-Falih said his kingdom based its budget on a "conservative" scenario for oil prices, he did not reveal a specific price, although economists estimate that price to be in the range of $47 to $55 per barrel.

Nasser Saidi, president of Nasser Saidi and Associates, took an optimistic view of the Saudis' main budget objective, noting, "It is feasible that the combination of expenditure reduction, new taxes, cutting of waste, privatization plans etc., could allow Saudi to eliminate the budget deficit by 2020.

"However, this would require fiscal adjustment by some 2 or 3 percent (of GDP) per annum, which risks inducing a recession."

Meanwhile, earlier this week it was reported that the Saudis, who are OPEC's de facto leader and the main booster of the cutback agreement, are trying to maintain market share by keeping Asian customers supplied while targeting output reduction at refiners in the U.S. and Europe - a move that could prolong excess global inventory.