Saudi Arabia, the world’s largest crude exporter, is “at ease” and won’t reduce production even after oil tumbled below $100 a barrel this week, according to a Saudi-based analyst said.
Saudi Arabia will need oil prices at $85 to break even this year, and it will only consider cutting output when prices are below $70 a barrel, Jarmo Kotilaine, chief economist at Jeddah-based National Commercial Bank, the nation’s largest lender by assets, said on Wednesday in a telephone interview.The kingdom won’t push for a production cut in OPEC when crude is at $80 to $100 a barrel, analysts said.Brent crude yesterday dropped as low as $98.74 a barrel for the first time in six months, triggering concern that Saudi Arabia and other producers in the Organisation of Petroleum Exporting Countries may cut output on concern that faltering economic growth will crimp oil demand. Bank of America Merrill Lynch said that Brent may fall to $80 in a “mild” recession, a price that would prompt OPEC to cut supply.
“Saudi Arabia will only act if prices remain in the neighborhood of $70 for a consistent period of time, but this may not happen soon as supply in the oil market is tight,” Kotilaine said.
“The market turmoil will bring prices down but the tight supply in the market will drive prices up again in a short time,” he said.
The Saudi economy won’t be affected by the oil price falls because “the growth momentum is coming from high government spending that can be afforded comfortably,” analysts at Riyadh-based Jadwa Investment Co said in a report.Saudi oil will stay above the $84 a barrel that Jadwa estimate is necessary to avoid a budget deficit this year, the investment company partly owned by members of the royal family.
“The average for the year to date for Saudi export crude is comfortably in excess of $100 a barrel,” Jadwa’s chief economist Brad Bourland, and Paul Gamble, head of research, said in the report.Prices may drop to $50 to $60 if the US fall back into recession and global economic environment continues worsening and “even in this scenario, we do not think there would be much impact on Saudi government spending,” Jadwa’s analysts said.
The government would draw on its foreign assets to finance the spending as it did in 2009, Jadwa said. Saudi Arabia’s net foreign assets were $492 billion at the end of June, $49 billion above its 2008 peak, according to data from the central bank.
From / Arabian Business News