After shrinking by 0.7% in 2017 for the first time since 2009, the Saudi economy pulled out of a recession in Q1 2018, growing by 1.5%, thanks to oil price rises, Capital Economics, a think-tank said Tuesday, as reported by Arab News., the kingdom’s economy in the first quarter,
Oil prices surged to around $80 a barrel last month from under $30 a barrel in early 2016 after OPEC and non-OPEC producers struck a deal to cut output, by 1.8 million bpd.
The country is securing additional revenues from non-oil economies like VAT, at a 55 tariff, from the start of 2018.
“Riyadh-based Jadwa Investment said Monday that Saudi fiscal reserves rose by $13.2 billion in April, marking its largest monthly increase since October 2013.
The reserves stood at $506.6 billion in April, down from $732 billion at the end of 2014,” said Arab News.
Since 2014, Saudi budget deficits have totaled $260 billion and the government is projecting a 2018 shortfall of $52 billion. Now the US is asking Saudi (And Russia) to raise oil production by 1 million bdp, but as this will drive prices lower, will the OEPC upcoming June 22 meeting agree to that?
1 more million, please
Bloomberg reports that the US government has asked Saudi Arabia and some other OPEC producers to increase oil production by about 1 million barrels a day, reflecting US President Trump dissatisfaction with rising fuel prices at the pump, and decision to reimpose sanctions on Iran crude exports that had previously displaced about 1 million barrels a day.
“Raising production was discussed at a meeting of some Arab oil ministers over the weekend in Kuwait City and a statement later pledged to ‘ensure stable oil supplies are made available in a timely manner to meet growing demand and offset declines in some parts of the world’.”
Benchmark Brent oil futures dropped as much as 2 percent to $73.81 a barrel in London trading after the U.S. request was reported, according to Bloomberg, but later recovered to $75.34.
Will Saudi go for it?
Despite all the jockeying behind closed doors, a series of public comments from the Saudi and Russian energy ministers suggest that the two largest producers in the OPEC+ group will likely agree to increase production in two weeks’ time, according to Oilprice.com, a prominent industry site.
“Russia is aiming for a larger increase in supply, perhaps around 1 mb/d. Saudi Arabia wants something much more modest,” said the oil site.
“Crown prince Mohammed bin Salman has waged an aggressive foreign policy and is itching for a fight with Iran. The Saudis need the U.S. on board with that campaign, so placating Washington with cheaper gasoline prices is a small price to pay.”
Also, shorter lead time for US shale to go from exploration to production, together with lower oil threshold prices of $60-$70 range today needed for shale rigs to start work from $100 in previous years, are added incentives for Saudi to agree.
Forbes said to expect markets to remain in limbo until the June meeting.
“International prices, which hit a high of $80 a barrel in May, are now more likely to head back to $50 a barrel rather than continue surging toward the feared $100 level,” said Forbes.
“Oil prices in the United States are at an eight-week low, hovering around $64.5 a barrel on Tuesday for West Texas Intermediate, as U.S. production continued its climb toward 11 million barrels a day.”
Forbes did say that Saudi cannot afford to let prices fall too far below $70 in the near-term.