Saturday, 23 April 2011

Saudi budget implies sustained high oil price

When the UK needs to balance it's budget we have to make cuts, but when Saudi Arabia needs to do it, it prefers to have a high oil price instead. An article in the FT says:

The break-even oil price the Gulf kingdom requires to balance its budget will jump from $68 last year to $88 this and then $110 in 2015, according to new estimates by the Institute of International Finance, a leading industry group.

Only a decade ago Saudi Arabia was able to balance its budget with oil prices averaging $20-$25 a barrel.
Given that Saudi Arabia exports about 7-8 million barrels a day, out of total net exports globally of just under 50 mbpd (source), it has a strong influence on price. The country is increasing spending to try and placate the masses, fearing an uprising similar to that in Egypt or Libya, but the money has to come from somewhere, and for Saudi Arabia that can only mean oil.

If Saudi needs a high oil price, we will get a high oil price, end of story.


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