It’s widely known that the oil price collapse really started last November, when OPEC decided to maintain output in the face of a supply glut.
Now, I’ve said before how this is coming back to bite Saudi Arabia, and the country is now looking for funding to keep its operations running.
And even though output has only increased as oil prices dropped below $45, Saudi producers need oil prices to be about $105 per barrel to truly achieve break-even revenues.
Right now, the country is losing money on the deal. Much of its current spending is going into exorbitant social programs enacted after the Arab Spring in 2011, and a total of $106.6 billion is also going toward energy subsidies, which keep domestic prices low.
But this is cutting into the country’s overall funds. Saudi Arabia’s foreign exchange reserves dropped from a peak of $737 billion in August last year to $672 billion.
To make up for this, the country has issued bonds to raise money. By the end of the year, the country plans to have raised $27 billion.
Of course, another option to raise money back would be to cut some of those subsidies. Other Gulf countries such as the United Arab Emirates have recently scrapped fuel subsidies and allow domestic prices to match up to the global market instead. This saved them about $1 billion of their average $29 billion yearly cost for energy sector subsidies.
If you follow the oil market, you’ll almost immediately notice that Saudi Arabia does not intend to cut its own, or OPEC’s oil production quota any time soon.
If that trend continues, those cuts will have to be made in other parts of the country’s energy sector.
To continue reading…
Until next time,
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