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Wed 10 Aug 2011 07:23 PM

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Saudi Arabia 'at ease' with oil under $100 - analyst

National Commercial Bank chief economist says world's largest exporter won't reduce production

Saudi Arabia 'at ease' with oil under $100 - analyst
oil rig, oil field, oil, energy, GCC energy, GCC oil, black gold

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.

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