Saudi Arabia, the world’s largest exporter of oil can abide by low oil prices over the medium term, said Finance Minister Ibrahim Alassaf on Thursday after the release of the 2015 fiscal budget.
Speaking on Saudi television, Ibrahim Alassaf said that Saudi Arabia would maintain heavy spending on economic development projects over the medium term, after the 2015 budget planned record government spending and an easily covered deficit.
“Over three to five years…The (economic) depth we have, God willing, will be enough until prices get better,” Alassaf said when asked to explain what “medium term” meant.
The minister said that everybody in the market is expecting an eventual rise in prices, but there is still the argument of when; some expect a recovery in oil prices in the second half of 2015, while others see higher prices in 2016.
Brent oil price have plunged to just below $60 a barrel from a June peak of $115, in the wake of slower global demand for energy and a supply glut
Still, Alassaf affirmed that Saudi Arabia can endure lower oil prices over the medium term.
The 2015 budget for Saudi Arabia expects record spending of $229.3 billion, with total revenues seen at $190.7 billion, which leaves a deficit of $38.6 billion.
Note that Saudi Arabia do not disclose the oil price which it calculates its annual budgets, but in recent years, the budgets normally base their calculations of prices well below current levels.
As analysts have estimated back then, the 2014 budget for Saudi Arabia assumed oil prices of below $70, but when it was planned, Brent was trading at levels above $110 per barrel.
“We were realistic in our estimates for next year’s revenues in light of current and expected developments in the oil market. Maybe over the past years I agree we were conservative, but this year we were realistic,” he said.
This could mean that the government has diverted from its usual practice and indicates the budget has assumed prices close to current levels.
Since revenues for budget planning includes non-oil revenues, and those are expected to increase next year in line with a stronger economy, oil revenues are projected to decrease even more.
Considering Alassaf’s comments, we could see oil prices to remain low for most of 2015 or at least until the third of fourth quarter of it, keeping in mind that Saudi Arabia continues to display its intentions of keeping output high at 9.6 billion barrels per day.