Saudi Arabia needs oil prices at $80.90 per barrel to balance its budget this year, the International Monetary Fund (IMF) said on Wednesday in its latest economic projections for the Middle East and Central Asia.
The breakeven price for the world's largest crude oil exporter for 2023 is estimated to be lower than the $83.60 and $85.80 a barrel levels of 2021 and 2022, respectively, but higher than the $80.40 breakeven average for the two decades to 2019.
Economic growth in OPEC's de facto leader is set to materially slow down from 8.7% last year to 3.1% this year and next, according to the IMF.
Real GDP growth for oil exporters in the Middle East and North Africa (MENA) region is expected to slow from 5.7% in 2022 to 3.1% in 2023 (and to broadly maintain that pace in 2024) "as the main driver of growth in most oil exporters shifts to nonhydrocarbon activities, reflecting agreed oil production cuts," the fund's economists said.
Saudi Arabia led a group of several major OPEC+ producers who announced in early April a surprise 1.66 million bpd cut in production between May and December this year as "a precautionary measure aimed at supporting the stability of the oil market."
Due to lower revenues from decreased oil production, the IMF now expects Saudi Arabia to run a budget deficit of 1.1% of GDP this year, contrary to the Kingdom's projections for another year of a budget surplus after the first surplus in a decade booked for 2022.
Saudi Arabia's budget is set to be close to balance this year, compared to a surplus of 2.5% last year, due to lower expected average oil price in 2023 ($85 a barrel per Fitch projections) and lower oil production, Fitch Ratings said last month as it upgraded Saudi Arabia's long-term foreign-currency issuer default rating (IDR) to 'A+' from 'A,' citing the Kingdom's strong fiscal position and "formidable" foreign reserves.
But Saudi dependence on oil remains high, although it has fallen in the past decade. The high oil dependence remains a rating weakness for Saudi Arabia's economy, in addition to weak World Bank governance indicators and vulnerability to geopolitical shocks, Fitch noted.
By Tsvetana Paraskova for Oilprice.com
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Meanwhile the overwhelming majority of OPEC+ members with the exception of Russia needs a price ranging from $80-$100 to balance their budgets.
The current decline in oil prices will reduce oil export revenues, decelerate growth rates in the Arab Gulf region and widen their budget deficits. For instance, Saudi Arabia’s economic growth is projected to slow down from 8.7% in 2022 to 3.1% this year and next according to the IMF.
Moreover, real GDP growth for oil exporters in the Middle East and North Africa (MENA) region is expected to slow from 5.7% in 2022 to 3.1% in 2023 and to broadly maintain that pace in 2024.
However, things could change quickly if fears of a global banking or financial crisis subside and prices recoup their losses and resume their surge.
Since last month prices have been on the decline because of fears that the collapse of three American commercial banks could be followed by more bank collapses and trigger a global banking or financial crisis.
And despite of the great progress achieved by the Gulf Cooperation Council (GCC) countries in the diversification of their economies, these countries will continue to depend overwhelmingly on the oil export revenues well into the future particularly that the Arab Gulf region will be one of three regions who will produce the last three barrels of oil. The other two are Venezuela’s Orinoco Belt and Russia’s Arctic.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert