Saudi Arabia struggles to cope with cheap oil
Saudi Arabia has managed to buy itself a couple of months.
The global rout of oil prices is taking its toll on the kingdom’s bottom line. The country has been forced to cut government spending in its upcoming budget and increase production of crude oil—even though its hardly worth pulling it out of the ground.
Still, the world’s largest producer of oil appears on a crash-course for bankruptcy as early as of 2018, according to a new Big Crunch analysis.
Many oil-dependent nations are having to dig deep to balance budgets, with crude oil fetching so little on the global market. Money-rich nations like Qatar and Kuwait look to be getting by, while poorer nations like Libya have descended further into strife and civil war. Oil would need to be selling for $269 a barrel for Libya to balance its budget, according to the IMF.
Saudi Arabia is somewhere in between: A stable nation with a sizable backup of reserve assets, somewhere around $624 billion as of December. But much of that stability is bought with government jobs and generous public spending and with falling oil prices, the country has had to dip into its reserve assets to make up the difference.
Of course, the analysis depends on no major economic changes or events effecting Saudi Arabia. It also assumes oil prices remain low, which experts consider likely for the time being.
CNBC looked at the country’s finances back in August, when oil swung between $48 and $41 a barrel. It had fallen a long way from its highs of $65 a barrel a few months before, but our lower estimate for its direction was way off. At the time, CNBC estimated the Saudis would be broke in August of 2018, yet that was based on oil at $40 a barrel and before they cut public spending.
The 2016 Saudi budget includes a spending cut of 13.8 percent from 2015 levels, though projections from Barclays puts that cut closer to 5 percent. Even so, the country is expected to reach a budget deficit of 12.9 percent of GDP in 2016, according to the investment bank.
In addition to spending cuts, Saudi Arabia has increased production, to more than 10 million barrels a day as of October, the latest figures available from the Energy Information Administration (EIA).
While the increased production helps to add a bit to the Saudi’s bottomline, it does nothing to alleviate the glut of oil on the global market. Global production is projected to be 95 million barrels a day in the first quarter of 2016, and consumption around 94 million, according to the EIA.
i think they can cope with it much lower..but can the rest?
looks like everyone in the world has the sauds penciled in for bankruptcy..do you think they will just let that happen?
“the world’s largest producer of oil appears on a crash-course for bankruptcy as early as of 2018, according to a new Big Crunch analysis.”
the opening up of aramco will help inject cash..the war will drag them down further than any oil price..