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Andy Tully

Andy Tully

Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com

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Saudi Facing Largest Deficit In Its History

Saudi Facing Largest Deficit In Its History

The nearly 50 percent plunge in the price of oil during the past six months is expected to leave oil-rich Saudi Arabia with its first budget deficit since 2011 and the largest in its history.

The budget, announced on Dec. 25, will include spending during fiscal 2015 of $229.3 billion, higher than in 2014, despite revenues estimated at only $190.7 billion, lower than in the current fiscal year. That would leave a deficit of $38.6 billion.

Oil prices have been dropping since June because of a market glut, caused in part because of prodigious oil extraction in the United States from shale formations.

Related: Saudi Arabia Ready For $20, $30, $40 Oil

As a result of this glut, OPEC was urged to cut production levels at its Nov. 27 meeting in Vienna in an effort to shore up prices, but wealthy members of the cartel, led by Saudi Arabia, decided to keep production at its nearly two-year-old level of 30 million barrels a day.

Saudi Oil Minister Ali al-Naimi has since explained that the OPEC strategy was to reclaim market share. Fracking has made the United States, once the cartel’s largest customer, nearly self-sufficient in oil. But fracking is expensive, and many believe it can’t be profitable if the price of oil falls much below its current level of around $60 per barrel.

Oil is the principal, if not the only, resource in Saudi Arabia, so it’s clear that the price of oil has a strong influence on how the country’s annual budget is drawn up. Different analyses, however, provide different answers to how Riyadh has forecast the commodity’s value. Four of these reports say the Saudi budget is predicated on oil averaging $55 to $63 per barrel in 2015.

One, from the Saudi investment bank Jadwa Investment, said the budget shows that the kingdom expects its oil exports to average $56 per barrel in 2015. Monica Malik, the chief economist at Abu Dhabi Commercial Bank, agrees, putting Saudi oil expectations at $55 per barrel.

The National Commercial Bank, the largest financial institution in Saudi Arabia, said the Finance Ministry expects a price of $61 per barrel. And Emad Mostaque, an oil strategist at Ecstrat, which consults for emerging markets, said the kingdom expected a price of $63 per barrel.

Related: Did The Saudis And The US Collude In Dropping Oil Prices?

One particularly knowledgeable analyst is John Sfakianakis, the former chief economic adviser to the Saudi Finance Ministry. He told the London-based Arabic-language newspaper Asharq Al-Awsat that the budget is predicated on oil prices that are appreciably higher, averaging about $75 per barrel in 2015 while keeping production steady at 7 million barrels per day.

“What happened is a surprise to some extent, for amid this huge decline in the price of oil, the majority of people believed that the Saudi budget would base its projected revenues on $60 per barrel,” Sfakianakis said.


“When Saudi Arabia bases its projected oil revenues for next year on $75 per barrel, it is sending a strong message to the market that it expects oil prices to rebound next year,” Sfakianakis said.

By Andy Tully of Oilprice.com

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  • zipsprite on December 29 2014 said:
    "Fracking has made the United States, once the cartel’s largest customer, nearly self-sufficient in oil."

    Why do people keep repeating this nonsense? We produced somewhere around 9MB/day in 2014. We consumed somewhere around 18MB/day. How does that qualify as "nearly self-sufficient"??? Yet you hear this myth repeated constantly. Yes, production has increased dramatically in the last four years in the US, but self sufficient? Dream on.
  • Carl Rimmer on December 30 2014 said:
    I think your getting self sufficient and weaned of middle east oil mixed up.
  • DickRitalin on December 30 2014 said:
    Hilarious watching seething greedy arabs panic for oil price stabilization. Remember the "Oil Embargos"? What goes around comes around. :-)
  • Mr. Bernard Wijeyasingha on December 30 2014 said:
    Some of the fallout:

    Massive number of foreign migrant workers who sent remittances to their home countries and those nations who depend on them will be severely impacted

    the end of the Petrodollar.
  • RE on December 30 2014 said:
    Poor Saudis. My heart goes out to all of them....
    I guess 4.88 QUADRILLION DOLLARS is hard to live on.
    Boy! What a curl world!
  • VillageViking on December 30 2014 said:
    Frack baby, frack...until it hurts!
  • StageCoachDriver on December 30 2014 said:
    I think part of the low oil price motivation is against Russia. We destroyed the USSR with a similar tactic under Reagan. I believe Saudi Arabia sees Russia supporting destabilization influence is the Middle East.

    In the mean time, I'm enjoying the low gasoline prices.
  • rob on December 30 2014 said:
    This brings up an interesting point.

    Just what are Saudi Arabia, and the other 'oil rich' states of the Middle East going to do when the gushers finally run dry. And they will. Someday.

    They'd better get their houses in order now, and figure out some other way to pay for the excesses of their 'royalty', and to provide for their people. Poor people are angry people.

    This won't end well.
  • Buck O'Fama on December 30 2014 said:
    In a perfect world, all arabs would be wandering the desert dunes clueless, alone and without a shred of other human contact. Having failed at being human, reduced to being bipedal dromedaries.
  • 4ever49 on December 30 2014 said:
    Yup - 9MM per day vs. 18MM is hardly "self-sufficient".
    It is probable the Saudi's see what is coming at them and are trying to slow the trend by reducing financial incentive.
  • stonehillady on December 30 2014 said:
    I heard a different story, I heard they had to keep pumping because those caverns must be back filled with water to equalize the pressure or else, they are at the bottom of the barrel with every barrel they pump out it is only in reality only 10% oil the rest salt water. They have no other choice and it is estimated they will have to pump like this for 5 years, then they are finished.
  • Dave on December 30 2014 said:
    Guess they should have invested their trillions in education and infrastructure and less in radical Islam and monuments to themselves. Now it may be too late.
  • willys36 on December 30 2014 said:
    Oil does not exist in caverns. It is saturated in some sort of matrix such as unconsolidated sand which is 30% void space where the oil exists, always in the presence of water, or in the cracks in naturally fractured shale. There is no technical urgency for them to produce or not produce, it's all based on economics. Saudi fields are no different technically from every other field in the world, just bigger than most. The middle east has been living off their deep, light, prolific oil fields for most of a century and will be in fine shape for the bigger part of the next century. When those begin to deplete they have multiple billions of barrels of oil in shallower, heavy oil fields that will take a little more technology to extract but trust me, they are going to be the major producing area of the world for several more generations. The world is in no danger of suffering an oil, coal, natural gas, or nuclear energy shortage, probably until the sun explodes and destroys the solar system. We don't have an energy problem, we have a government problem.
  • Gill O’Teen on December 30 2014 said:
    Sorry, but this is an oil war. This article correctly points out that fracking is expensive. It costs roughly twice as much to extract oil from shale as from desert sands. If I know this, the Saudis surely do as well. If they can drive the barrel price of oil down to about $40, American oil frackers cannot compete and will suffer the same fate as other non-competitive businesses always do - seeking bankruptcy protection. This is why, even with the current conditions, the Arabs expect the oil price to rebound - less competition. This will turn nasty.
  • Kaya on December 30 2014 said:
    That's what happens when your entire population is a group of rent seekers - no producers.
  • Claire Alexander on December 30 2014 said:
    As I read these comments I realize most people do not understand fracking, the states where it is taking place or the people who are doing it. There will be no capping of the oil wells no matter how low the price of oil. If the Saudis think to undercut the American shale oil industry they are sadly mistaken for many can turn a profit at thirty to forty dollars a barrel. Lower prices will simply spur our producers to produce more oil in order to make up for the shortfall in profits. I am a resident of Louisiana and we haven't come close to tapping all of our shale oil reserves. We already have the cheapest energy prices in the entire country and we are going to keep them cheap. Those cheap energy prices are a magnet for businesses who are building in our state. It is a new day for Louisiana and the country, one of prosperity and growth. America will dominate the next century with cheap and abundant energy.
  • tymwltl on December 30 2014 said:
    If the political policies of nations can be controlled by the manipulation of oil prices and it helps the United States then by God bring it on !
  • John on December 30 2014 said:
    Obama promised that he would make Health Care affordable, and that gas prices would necessarily skyrocket. He can't seem to do anything right...
  • Denny Johnson on December 30 2014 said:
    the US Govt. should allow drilling on Federal (US taxpayer land)....... all revenue or royalties shoud go to paying down the deficit. Same with metals...... use Fed. lands and reduce the deficit......due from our children's children.
  • glenns26 on December 30 2014 said:
    Yes, some US producers might go offline producing due to the low prices but when the price rebounds, back online they go. Eventually you are going to see a leveling of the price after the yo yo effect ends and when that happens the Sauds will no longer be the dominate force they have been.
  • dsdx on December 31 2014 said:
    rob on December 30 2014 said:
    "This brings up an interesting point.

    Just what are Saudi Arabia, and the other 'oil rich' states of the Middle East going to do when the gushers finally run dry. And they will. Someday.

    They'd better get their houses in order now, and figure out some other way to pay for the excesses of their 'royalty', and to provide for their people. Poor people are angry people.

    This won't end well."

    Well, they have lots of money tied up in sovereign wealth funds, stocks, banks and other investments which will keep them afloat for a long time. Oil wont dry up anytime soon, if anything another 100 years.
  • Aaron Lewis on December 31 2014 said:
    180 governments signed off on IPCC AR5, but the Arabs actually read it. AR5 says that for reasons of global warming, we must be off fossil fuels in 30 years.
    The Arabs have 80 years of oil at recent production rates. If they want to sell most of their oil before AGW shuts down oil markets, they need to increase their market share. They can do that by pumping more oil. Pumping more oil is how they can collect more total oil revenue.
  • Edward R Boothe on December 31 2014 said:
    For once, maybe justice has prevailed.
  • Clarence on December 31 2014 said:
    I keep reading that the Saudi's are deliberately driving down the price of oil to get the US Fracking companies out of business. This argument doesn't make much sense. In the first place it's not the Saudi's driving prices down, it's the US Oil companies. Even if the Saudi's do cut production it won't affect the US market nearly as much as ME and S. American economies. The reason OPEC hasn't cut production is because they can't afford to. Oil sold for a profit at $30 a barrel 15 years ago, record profits. So let's say the Saudi's drive the price of oil to $40 a barrel, what then? They hold these price forever or does the price come back up where Fracking is profitable again. These oil prices equate to a $2 an hour raise for the average consumer.
  • Thomas S. Stein on December 31 2014 said:
    Fracking is not expesnsive, and once in is even less so. The Saudis wanted to crush Russia and Iran. Iran is less vulnerable than Russia. However, the House of Saud is determined to eliminate the American subversion of Middle Eastern control. As soon as conditions are cranked out and confirmed by the legeslature, Iran will begin to fold. This means it will fall all over the Russian bear.
    I project that Wal-Mart will get an opportunity to streamline North Dakota refining and distribution of Natural Gas and gasoline. This will produce a permanent retail price for gasoline, beneath 50cents a retail gallon. Likewise Natural gas. Then, the fringe utilization of these natural resources will become the issue and again, Wal-mart wil be the delivery mechanism. This is going to be the long-term mechanisn for American prosperity.

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