Next year’s budget suggests Saudi Arabia is basing its revenue on a price of $26 a barrel for export crude, if production remains at 10.2 million barrels per day, said Fahad Alturki, chief economist and head of research at Saudi-based Jadwa Investment.
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The Saudi-led policy is meant to cause a period of low prices that drives out producers thought to need high prices, such as the U.S. Eventually, analysts have said, supplies should recede, increasing OPEC’s share of the market and eventually causing prices to rebound. The decision comes on the heels of a dramatic drop in oil prices over the last 18 months that have hit its oil revenues hard. In an effort to put competing oil producers out of business – as well as United States shale-oil extraction companies – Saudi Arabia and other OPEC nations have increased production.
The report shows that total revenue for 2015 is estimated at SR 608 billion in FY 2015, with an estimated decline of 15 per cent compared to the budgeted revenues.
The country’s Income fell a full 42% from the previous year.
As a results, cuts are coming: The budget calls for a 14% reduction to 840 billion riyals ($224 billion), down from 975 billion ($260 billion).
The country announced Monday a Riyal 513 billion budget for 2016, down from $229 billion in 2015.
The collapse in oil prices has slashed government revenue, forcing officials to draw on reserves and issue bonds for the first time in almost a decade.
In order to address the situation, the Gulf kingdom has set the price of 95 octane gasoline at 0.90 riyals ($0.24) per litre up from 0.60 riyals per litre – a hike of 40 percent.
National oil conglomerate Aramco said on Twitter (Xetra: A1W6XZ – news) it was immediately closing petrol stations until midnight on Monday, when it will resume sales at new prices.
Petrol prices will rise by 50 per cent in the country from December 29, while fuels such as diesel and kerosene and utility charges are also likely to rise.
“The oil sector will be a drag especially with no expected increase in crude production”, NCB said in a note.
Saudi Arabia also said it spent more than expected on social security benefits and salaries for government workers and military members.
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The International Monetary Fund warned in October that Riyadh would run out of money within five years if it did not tighten its belt.
