According to the International Monetary Fund, the average oil price will fall this year by only half as much as forecast six months ago. The Fund said this in respect to Saudi Arabia which needs to balance its budget by the price of oil.
Noting a fall of 14 percent, the IMF said in a report released on Wednesday that the country’s fiscal break-even price will drop to $79.70 a barrel this year from $92.90 in 2015. Saudi break-even price would decrease by 30 percent this year, to $66.70 a barrel from $94.80, the IMF had projected in April.
The Saudi Arabia government’s efforts to cut costs and diversify its economy away from petroleum are having less of an effect than the IMF forecast previously are suggested by the new numbers which were released just ahead of Saudi Arabia’s first-ever international bond sale. According to a World Bank report in July, more than 80 percent of Saudi Arabia’s official revenue is generated from oil.
An OPEC deal that will effectively force it to cut production to support oil prices, even though its regional rival Iran will be exempt from capping its output Saudi Arabia was supported by Saudi Arabia last month in Algiers. This step by Saudi Arabia can also be explained by the IMF’s revised projection. After Iran refused to take part, Saudi Arabia vetoed a proposed production freeze in April.
Down from $60.10 in 2015, the IMF said that Iran’s break-even price for this year will be $55.30. And How Iran’s more diversified economy has given it an edge over the Middle East kingdom is exhibited by the fact that this projection is lower than the $61.50 the IMF forecast for Iran in April, and much less than the fund’s revised break-even price for Saudi Arabia.
Experts are of the view that this year, both the countries will be hard-pressed to balance their budgets. Benchmark Brent crude was trading at about $52 in London on Wednesday and has averaged less than $45 a barrel in 2016. According to executives, traders and officials who had gathered at the annual Oil and Money conference in London this week, Benchmark Brent crude prices will probably stay between $50 and $60 for the foreseeable future.
“With oil expected to remain at the $50 to $60 level next year, you will need to see further fiscal consolidation” in Saudi Arabia, Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC, said at the launch of the IMF report in Dubai. “This is going to continue to impact growth in the medium term.”
The IMF said that Kuwait, with a break-even oil price for this year of $47.80 a barrel, will be the only OPEC member in the Middle East and North Africa to be able to balance its budget with oil below $50. The Washington-based fund said that at $216.50 a barrel, Libya had the highest break-even among the region’s OPEC members.
(Adapted from Bloomberg)
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