Saudi Arabia Needs $88 Oil – Higher oil prices have provided a boost to the economies of oil-exporting nations such as Saudi Arabia – Saudi Arabia $88 Crude Oil - Arhive

This content has been archived. It may no longer be relevant

Saudi Arabia $88 Crude Oil Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil  

Saudi Arabia Needs $88 Oil

 Saudi Arabia $88 Crude Oil

Higher oil prices have provided a boost to the economies of oil-exporting nations such as Saudi Arabia. But the economic risks going forward are “skewed to the downside,” the International Monetary Fund said in a new report, in which it urged Saudi Arabia and other oil exporters to press on with reforms.

Oil price volatility, trade tensions, geopolitical risk and a “sharp tightening of global financial conditions” are just a few of the potential pitfalls that lie ahead.

But the IMF paid extra attention to the debt levels of some oil producers. “The tightening of global financial conditions, if interest rates will continue to go up and liquidity will be less available, this will affect countries with a high level of debt — mainly oil importing countries where the average debt exceeds 80 percent (of gross domestic product),” Jihad Azour, director of the Middle East and Central Asia Department at the International Monetary Fund, told CNBC on Monday.

“Last but not least, some countries have succeeded in implementing reforms but what is important is to keep the momentum there and to address some of the structural issues,” Azour said. He believes that the “region needs to create at least 25 million jobs for the young generation in the next five years”.

The IMF said that Saudi Arabia needs to continue “structural reforms,” largely referring to the Vision 2030 plan spearheaded by crown prince Mohammed bin Salman. New taxes, deficit reduction, labor market reforms and investments in non-oil sectors of the economy are crucial.

While the economies of oil exporters have improved as oil prices have jumped to a three-year high, economic growth “is projected to remain well below its pre-2014 oil shock levels,” the IMF said. High levels of debt will act as a drag on the economy, limiting the extent to which governments can spend to improve short-term demand.

And for Saudi Arabia, oil prices are still too low to fully balance the books. The IMF claims that the Kingdom needs about $88 per barrel to balance its budget, up sharply from $70 per barrel last year. The sudden jump in the fiscal breakeven price is the result of an increase in spending expectations.

Saudi Arabia’s GDP growth rate is expected to rise to 1.7 percent this year, after shrinking by 0.5 percent in 2017. But, as the IMF warns, the improved outlook is largely due to the uptick in government spending. “This expected acceleration in growth is not a free lunch – the government is picking up the bill,” said Ziad Daoud, chief Middle East economist for Bloomberg Economics. “The old model of an economy driven by government spending and financed by oil hasn’t really changed.”

Still, some are unmoved by the IMF’s warnings. Ellen R. Wald, an expert on the Saudi oil sector, wrote in Forbes last year – after a previous warning from the IMF – that the concerns are overblown. Saudi Arabia has plenty of cash reserves, Saudi Aramco has low production costs and the budget deficit has shrunk dramatically, she argued. And in any event, taking on debt is a normal thing that modern countries do.

Moody’s reaffirmed Saudi Arabia’s “A1” credit rating on Wednesday, noting that the economic outlook was “stable.”

While some dismiss the short-term concerns related to the Saudi budget deficit, the IMF’s concerns about diversifying away from oil over the long-term are legitimate.

Saudi officials shrugged off the warnings from the IMF. Saudi Arabia responded to the advice from the IMF by saying that the rise in oil prices won’t change the course that it has charted towards economic diversification. “Higher oil prices will only help reduce the deficit and build reserves, we will continue our reform,” Saudi finance minister Mohammed bin Abdullah Al-Jadaan told CNBC on Wednesday. “I assure you that there is a lot of excitement about reform and when you see results you get more energy to do more because you can see that it’s working and helping the economy,”.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:

Related Topics

-BP says still sees oil at $50-$60/bbl in 2018 as shale output surges – BP expects benchmark oil prices to weaken in the second half of the year as U.S. shale production surges by up to 1.5 million barrels per day – BP crude oil $50 $60 barrel 2018 shale output

-Iran and the oil market – How Iran’s nuclear deal and a host of other factors are forging a new crude reality – Iran Crude Oil market

-Oil output cuts succeeded but future cloudy – There is a danger of Opec, non-Opec members exceeding their vision due to current rally in oil prices, energy expert says – Oil output cuts Opec nonOpec

-Who’s to blame for costly oil? Saudis, Russia and Trump himself – Rising oil prices are now the latest target in President Donald Trump’s cross-hairs. The nation’s tweeter-in-chief complained Friday about OPEC fueling – Blame costly oil Saudis Russia Trump

-Oil pulls back from gains; OPEC says glut nearly gone – Oil prices on Thursday hit highs not seen since 2014, built on the ongoing drawdowns in global supply and as Saudi Arabia looks to push prices higher, though U.S. crude gave back gains in the afternoon to finish lower – Crude Oil OPEC glut Saudi Arabia

-Escalating Middle East Tension Could Trigger Oil Prices To Hit $100 Per Barrel – Oil prices could soon soar to $100 per barrel amid growing fear about conflict in the Middle East, according to an oil analyst for CNBC – Oil Prices $100 Barrel

– IEA: OPEC Mission Near Completion as Oil Glut Vanishes – OPEC is on the verge of “mission accomplished” in its quest to clear the global oil glut that caused the worst industry downturn in a generation – IEA OPEC Crude Oil Glut

-Is Russia Cheating On The OPEC Deal? – After three months of steady output, Russia’s crude oil production increased in March to 10.97 million bpd, the highest level since April 2017, as the top two Russian companies boosted their production – Russia Cheating OPEC Deal

-Oil price crosses $70 amid Iran deal tensions – Oil prices rose as investors saw increasing possibility that the US could withdraw from the historic Iran nuclear deal – Crude Oil price dollars 70 Iran tensions

-Is $70 oil the new normal? – The global economy is poised to cope well even if oil prices will remain at around $70 per barrel throughout 2018, energy experts said – Dollars 70 barrel crude oil shale oil

-Will oil prices remain strong for the rest of the year? – The oil inventory trajectory anchors oil prices in the short term, and the cost of bringing on the marginal barrel of US tight oil supply serves as the medium-term anchor for prices – The oil inventory trajectory anchors oil prices in the short term, and the cost of bringing on the marginal barrel of US tight oil supply serves as the medium-term anchor for prices – Crude Oil prices

Saudi Arabia $88 Crude Oil Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil   Saudi Arabia $88 Crude Oil