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Saudi Facing Largest Deficit In Its History
Submitted by Andy Tully via OilPrice.com,
The nearly 50 percent plunge in the price of oil during the past six months is expected to leave oil-rich Saudi Arabia with its first budget deficit since 2011 and the largest in its history.
The budget, announced on Dec. 25, will include spending during fiscal 2015 of $229.3 billion, higher than in 2014, despite revenues estimated at only $190.7 billion, lower than in the current fiscal year. That would leave a deficit of $38.6 billion.
Oil prices have been dropping since June because of a market glut, caused in part because of prodigious oil extraction in the United States from shale formations.
As a result of this glut, OPEC was urged to cut production levels at its Nov. 27 meeting in Vienna in an effort to shore up prices, but wealthy members of the cartel, led by Saudi Arabia, decided to keep production at its nearly two-year-old level of 30 million barrels a day.
Saudi Oil Minister Ali al-Naimi has since explained that the OPEC strategy was to reclaim market share. Fracking has made the United States, once the cartel’s largest customer, nearly self-sufficient in oil. But fracking is expensive, and many believe it can’t be profitable if the price of oil falls much below its current level of around $60 per barrel.
Oil is the principal, if not the only, resource in Saudi Arabia, so it’s clear that the price of oil has a strong influence on how the country’s annual budget is drawn up. Different analyses, however, provide different answers to how Riyadh has forecast the commodity’s value. Four of these reports say the Saudi budget is predicated on oil averaging $55 to $63 per barrel in 2015.
One, from the Saudi investment bank Jadwa Investment, said the budget shows that the kingdom expects its oil exports to average $56 per barrel in 2015. Monica Malik, the chief economist at Abu Dhabi Commercial Bank, agrees, putting Saudi oil expectations at $55 per barrel.
The National Commercial Bank, the largest financial institution in Saudi Arabia, said the Finance Ministry expects a price of $61 per barrel. And Emad Mostaque, an oil strategist at Ecstrat, which consults for emerging markets, said the kingdom expected a price of $63 per barrel.
One particularly knowledgeable analyst is John Sfakianakis, the former chief economic adviser to the Saudi Finance Ministry. He told the London-based Arabic-language newspaper Asharq Al-Awsat that the budget is predicated on oil prices that are appreciably higher, averaging about $75 per barrel in 2015 while keeping production steady at 7 million barrels per day.
“What happened is a surprise to some extent, for amid this huge decline in the price of oil, the majority of people believed that the Saudi budget would base its projected revenues on $60 per barrel,” Sfakianakis said.
“When Saudi Arabia bases its projected oil revenues for next year on $75 per barrel, it is sending a strong message to the market that it expects oil prices to rebound next year,” Sfakianakis said.
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Revolution coming to Saudi Arabia.
women drivers no survivors says Abdul Aziz Al ash-Sheikh
This is what the end game looks like. Economies collapsing under the weight of debt (denominated in USD). Demand for oil collapses. US oil revenues collapse. Saudi revenues collapse, and to feed their deficit they will sell...USTs.
US is fucked either way. Time to invade?
Well, they can take their deficit and shove it right up their $.75 Trillion of foreign exchange reserves.
This just has to be a banker/US State/’MIC manipulative fix… Iran, Venezuala, Russia etc. damage and promote chances for conflict or war.
Yes I would say they have a pretty good rainy day fund...and some gold covered Mercedes too....
Saudi Arabia Prince: can’t get the private G650 off the ground if loaded with all personal gold.
Saudi Arabia Prince Wannabe: can move all personal gold on a two wheel dolly.
Don't insult the Prince. He has a private $500M A380 capable of hauling his 200 tons of gold bars anywhere.
Bail out plan offered here for all to see: I will give him $2500 for each and every Bentley in Stock and will haul for free.
Turbo R models: $50 each above and beyond. Fuel loads not required.
FOB: Syria.
Bail out plan offered here for all to see: I will give him $2500 for each and every Bentley in Stock and will haul for free.
Turbo R models: $50 each above and beyond. Fuel loads not required.
FOB: Syria.
Here is what the monkey in the forest had to say.
http://rt.com/usa/218731-obama-npr-interview-russia/
Just because nations denominate their total fx reserves with a dollar figure for convenience sake does not mean that their holdings are only in dollars. China's total, so far as I know, is only about 25% USD, and would amount to about a year's worth of QE in total.
Wish I could find the link, but the SA English paper had an article about four months
ago about the sovereign wealth fund being redominated in SDR's.
Yeah, the IMF and the SDR is the ultimate bankers wet dream but it'll only work if everybody plays but they are going to start losing players soon.
They have a publice service campaign chronicling the horrors of female driving from omar abdel dajjal al-saoud's genetically inferior women's driving academy and remedial bronze age cooking school for the criminally oppressed.
https://www.youtube.com/watch?v=QsG1eTqd5_E
truly spine chilling.
The Colonial Monarchist regime is the root of all its problems, it hogs all powers and resources under a few royal families and then hire other countries to be their henchmen when the rest of the population want their own freedom and oportunities(and a piece of their own local ressources), its the real root of terrorism in the middle-east.
So the Saudis are scared too at $53 oil, but what can they do? Cut? They've burned that bridge to the ground already, any cut now would cost them all their credibility and shoot oil back to $100. Can't have that.
Seems tthey've lost control, overdid it a tad. And in the peprocess may have just kicked off a deflationary spiral.
It's like a whole country full of Darwin Awards candidates.
My idiocy is on record from day 0 as stating that the Saudis are the last country in the world who can stand preniciously low OIL prices. They are on record as saying they want / need oil at 100. Why? To fund their social welfare programs to stave off revolution as you state.
Dude, please. The proper nomenclature is "Arab Spring" Hillary and Barry and the Facebook geeks TM'ed that one and will own it eternally.
Any revolutionaries will be labeled terrorists and droned by the US. That's my bold prediction (as if we haven't done it before).
Smiles, everyone, smiles!!!
Burka discounts on aisle 11.
Don't care. I do like the $55-$63 assumption in their budget, though. That's telling (if it's true).
Socialism is expensive.
I used to agree, without reservation. then I compared european "socialist" health care with what is called ObamaCare, which is profoundly lobby-capitalist, and now I have to answer: depends
socialism, properly applied at the right spot, has some value. in fact, if you grew up in a family, you grew up in a kind of socialism. except if you had to pay for rent and costs from day one, that is
------------
I don't believe any number coming out of Saudi Arabia. No, I don't distrust Arabs, or Arab numerals. Just whatever Saudi Arabia says about oil. Two years of low prices is more likely, imho
Yet it's failed everywhere it's ever been tried.
socialism? yes, when applied on everything, yes. but on specific fields?
take Prince Otto von Bismarck's Pension System that Tyler used to rail against, for example, is over 125 years old. Two major wars, revolutions, hyperinflation, and still going on
or the single-payer health care systems like the British NHS
or, again, take the custom of fathers and mothers to give to their children according to their needs
or one of the most profoundly socialist organizations on earth: armies
Ghord, you're going to make peoples' heads explode if you talk about segregating aspects of the economy... of course, they're probably driving on public roads, using public sewers, and drinking from public water sources, but hey... let's not get in the way of ignorance.
The big issue with socialism is that it effectively sets in place those actors with the most entrenched power. For example, who could reasonably break into the health care arena that isn't already a big player? If we allow the existing players to bite the dust, then their replacements may have a more reasonable go at it. If we were to incorporate socialism into the present mix, it would simply put a governmental stamp on existing private infrastructure and bail out laughably absurd capital decisions. Do you really expect a governmental take-over of the existing system would end with some net benefit to the average person?
The solution to the american healthcare problem is incredibly simple, pay as you go. If you need serious medical care and have no means to pay for it, then show up at an ER and you'll get treated or, alternatively, apply to charity or a reduced rate from the medical provider. Same as it ever was. Regardless, increasing government's hand to the mix is not the answer... Same solution to student loans... If universities were not subsidized by the government, then the cost to attend would decrease. It hasn't been but a few decades since the locals paid for healthcare with homemade jellies and jams, pigs, venison, or even some labor. People got seen and medical procedures were performed... Magic. We're already well on the way to reversion...
The best solution to the healthcare problem in the US is to outlaw HMOs and Medical Insurance companies. Eliminate Medicare and Medicaid while we're at it. Eliminate the drivers behind the high costs and bring real competition back to the marketplace.
In every single case, giving the government more power is always a bad idea.
""""I compared european "socialist" health care with what is called ObamaCare, which is profoundly lobby-capitalist"""
Hardly, Obamacare is far from capitalist. Anything that is not capitalist is the opposite, socialist.
seriously? I see lots of corporations profiting from the thing. capitalist
profit= capitalist. no profit, no capitalism
Ghordius, that's nonsense... didn't animal farm confirm what we already knew? Some animals are more equal than others even on animal farm... Whether it's a corporation or "the party" it matters little to the average person... same shit, different day.
It's like arguing that charities are non-profit... if you take your profits out as expenses, then what's the practical difference? Virtually all look exactly like their for profit counterparts, albeit slightly less efficient at the ground level and probably just as efficient at the large bureaucratic level. Needless to say, there are an incredible amount of non-charitable beneficiaries of the charity...
PS, technically speaking, in a perfectly capitalist society (perfect competition in every market), wouldn't the profit for market participants be zero? Isn't zero profit the entire purpose of capitalism? [hence why it is avoided at all costs and, thus, is impossible to actually implement]
oh hey, guys, guys! The Saker just recently posted what seems to me a good perspective on this socialism thingy:
http://vineyardsaker.blogspot.com/2014/12/rethinking-politics-irresistib...
I've just seen too many good people's time wasted chasing their tails around this subject.
very interesting article you have linked here, Hobo Sapien. Thanks
the Serbian perspective shown there is... refreshing
I'm glad you thought so; I agree.
Socialism works well if you have an endless supply of smart virtuous people willing to do what's best for the long term. Back on Earth however, it tends to work for about one or two generations, plus or minus the impact of finding a glut of oil within your borders, and plus or minus the existing capital the nation has already amassed pre-socialism.
So is Neo Feudalism.
Especially when you've got all those child support payments to make, because having just one child-bearing wife was not good enough for the Wahabists, and these young Royals need diamond rings and a new Mercedes Benz.
Cousin marriage is even more pricey, because every generation gets dumber and sicker. Saudi Arabia has very high rates of consanguine marriage, as do most Arab "countries".
Same as Switzerland.
I am looking forward to the moment when these fuckers get what they deserve.
Saudi Oil Minister Ali al-Naimi has since explained that the OPEC strategy was to reclaim market share. Fracking has made the United States, once the cartel’s largest customer, nearly self-sufficient in oil
Nonsense:
US Oil Production 12.3 million barrels a day
US Oil Consumption 19 million barrels a day
That is hardly self-sufficient.
Yes, but please understand, even "above-average" Americans these days do not understand math.
nevermind the other 200+ million idiots running around.
Its a nice gesture, explaining the strategy and all.... Lets all hold hands and take a walk through the garden.
A sword dance would be nice.
Nearly independent of the ME is a a better description. We get oil from Mexico and Canada and Venezuela. As our production rises, we takes less and less of that, which in turn then has to go out to compete against Saudi customers.
Regardless, their former #1 customer has gone poof. That's a pretty big hole to blow in anybody's revenue stream.
Enter China...
It's code for "North American" energy independence.
If you had paid close attention to the right people, you'd have picked up on this key tidbit. Even Romney referred to it as "N. Am. energy independence" in his 2012 Campaign.
IOW... they included Canada's and Mexico's production in their calculus and PR rhetoric.
p.s. At $55-63 prices, the oil companies in these two countries are back in the black. The frackers... not so much. I smell opportunistic and planned Con-so-li-da-tion.
We know they are helping to tank the oil price. We don't know what they got out of the deal. They wouldn't just cut their revenues in half if there wasn't some clause to protect them while we try to destoy Russia. (Think pallettes in Iraq)
The Saudi's have been profoundly unhappy about the petrollar system since 2008.
Manipulating gold down has been probably about keeping Saudi's and China in the
game this long.
While the US motive for hitting the oil price are simplistic(and stupid), the Saudi motives
are probably not. Beware the old Arab favourite,the double double cross.
Not hard to con our secretariat of state, or his boss.
I'm not sure who is fucking who here.
Can't discount this.
Sitting in the desert does give them the space to think, does it not.
The Zionist Saudis are really Zioniist, Study the history's
How does that preclude fucking the USA ?
All thats left are the pips, to quote Nuttyhandjob,
Look at the term Goy.
Not sure who is 'fracking' whom? ;-)
Royal court intrigue aside, it occurs to me that fracking in Ukraine is now also quite unprofitable, and young Mr. Biden may have to look to another corporate Board to join.
+1 for Secretariat of State! LOL!
We need to add the cost of sales (Persian Gulf Tanker Escort) to that ME oil - to level the playing field. Or is it unfair for them to be burdened with that (so keep that burden on the U.S. Taxpayer)?
This article omits the most important statistic for me, Saudi's cost of production per barrel. Fracking costs can be reduced by quite a lot from what I've read and seen. One yr of deficit for SA after all the surpluses is NOT a big deal.
No matter their cost of production, for every barrel pulled out of the ground, they spend over $100 on the 99%.
Fracking costs cannot be reduced too much because the depletion rate of each new play is horrendous when compared to that of a classical well (as in 2-4 years vs 15-25 !). Despite any propaganda you might read in WSJ, drilling new wells is NOT cheap. Besides, fracking requires pumping all sorts of stuff inside the ground on a permanent basis, to ensure a positive pressure for oil. Nice try... but no cigar for you !
When a big corporation/country doesn't like the competition they sell their goods at a very low price and drive out the competition. Then when they have put them out of business they can go back to being the big shot and drive prices far higher than before if they want
Large Deficit? . Can't they just sweep it under the magic carpet Fed style?
Basically Saud is like Putin's Russia : it only has Oil/gas to generate wealth.
Putin has the additional cost of running his MIC.
But so has Saud, as Uncle Sam's MIC is probably as costly to Saud and region --both by its boots on ground presence as by the expensive toys and incidental services it sells-- as is Russia's military complex to its national coffers.
Playing along with Kerry's heinz ketchup concoction of low oil prices coupled to Dodd Frank shenanigans at home will entail a huge downside for all players of the Oil patch worldwide; all to kill the Sundance Kid in his Ruble hole in the Cold Taiga.
If you kill the goose that lays the golden egg, you cut your own nose to spite your enemy !
The Oil patch is now turning into the Casino of delusional and desperate hubris gone virally disconnected with harsh economic reality, alike the Fiat chug-a-lug choochoo train.
Rancho Mirage!
Energy only contributes 11% or so of Russia's GDP.
and to its exports?
17 - 18.5% of GDP. But accounts for around 70% of export. It hurts Russia but not to the extent everyone thinks. The MIC of Russia accounts for 25% of Russias Industrial complex and more for total amount in domestic consumption of specialized material like composites and possibly around 80% of Russias domestic electronics production. Thus the MIC plays a significant roll in Russias economy, hence they will never go back to not buying mil products. Just stretch out deadlines (SAP). While Russia spends a lot in military, a lot of that goes back to Russis in taxes due to companies being domestic. Saudi Arabia doesnt have that luxury.
You've got it very wrong about Russia - see other comments rather than me repeat, but it's worth emphasizing that Russian oil (still) sells for USD, whilst it's costs are mainly in roubles, so the budget is far less hurt than most other places.
2nd most idiotic ZH article in ZH history.
Sometimes I think they do it on purpose
For sure this article is worthless
"Never, Ever, let them see you sweat..."
Keynesianism/Mercantilism (closet socialism): blaming capitalism and well-defined private property rights for the overuse and misallocation of resources while subsidizing the overuse and malinvestment of resources to dupe the population into needing you, then blaming capitalists for the inevitable collapse and accelerated depletion of resources.
The Saudis have a very large amount of sovereign wealth, close to a trillion USD. They invest it well. They can cover a deficit of that magnitude for years and years.
You think they want to use their personal bank accounts (which is what the "sovereign" fund is) on the 99%? Please, these are TPTB. The sauds are fucked with these lower prices like everyone else, and they know it. There is no glut.
Are you suggesting that Kerry and the Saudis are betting they can stay in power longer than Putin, in this war of Attrition? That'd be my conclusion.
Especially if I hear on Russian radio (Radio Sputnik streaming on the Internet) that some prominent anti-Putin candidate is getting very vocal about Putin's ouster once again (after barely escaping a prison sentence for Fraud). Seems like the Full Spectrum Dominance crowd is busy firing on all cylinders, in order to give their Agenda the desired traction.
Was it Khodorkovsky by any chance? He is chosen with connections to the Red Shield family.
http://en.wikipedia.org/wiki/File:Mikhail_Khodorkovsky_2013-12-22_3.jpg
Navalny to be exact. The guy is also breaking his house arrest rules. And he just barely escaped prison terms. The guy is useless and is a criminal oligarch. He is just popular with the (small) liberal movement in Russia. But after what US has been doing to Russia, Putins popularity sjy rocket and there is apparent evidence of Navalny entering and leaving US embassy in past. As well, his attempts for a "maiden" in Moscow can only garner possibly 30K in a city of 11M, and his previous attempts all failed. His image will get diminished the more he works with US.
In the short term, Saudi will be just fine selling at a loss.
In the long term, it is to be dismembered, per the Oded Yinon plan - so deficits, truly, don't really matter.
They just have to help fund ISIS for another few years, then they can dry up and blow away.
we all know damn well the sultans are rubbing their hands together at the prospect of snatching up as many as possible of the locations whose funding will fail.
OPEC will play this for another 4 months and then pull a surprise cut of 5m bbls a day shooting the price back to $75-80..no way it stays down here all year.
I really think you are being conservative with your target, I would wager it hits $90-100. Something about that magic nice round figure of $100.
It is at a point where volume gridlock is possible,and no one wants to budge by fear that it will only give market share to somebody else, but you do have a point.
Recall one more very serious issue for the saudis. The population keeps increasing...at nearly half a million people a year. So the oil per capita just keeps dropping every year. But the population's expectations surely do not.
The Saudis may not want to give up too much of thier savings as its pretty much all they have. They will need those savings just to stay on the bronco pretty soon even if oil goes back up.
The current king is just about dead. Whomever takes over will certainly be the guy in charge as this problem gets worse.
If the West, Japan, and China can run unlimited budgets for decades, why can't the Family Saud?
They should go back to raising camels.
THe US now facing the DOW below the critical/Farcical 18,000 level.
i don't doubt for a second saudis 2015, and probably 2016 budget is set around $55-$60 a barrel for oil, i'd like to see the projected price of oil for their 2017 budget, i'm thinking $115-$120 a barrel, then the 2019 budget set around a $75-$80 a barrel oil, 2020 oil will be budgeted at $150-$180 a barrel.
oh my, where are the saudis going to get $38 billion dollars, to make up for their 2015 deficit, maybe from the american tax-payers in 2017, i'll bet thats in their 2017 budget also?
there's a reason it's called black gold.
Somebody posted this last night in another thread.
"If prices drop too far the entire extraction industry will go out of business, that the prices have crashed indicates half the industry is already out of business, it just doesn’t know which half it is yet.The increase in petroleum volume isn’t necessarily a blessing as the energy content of the newer fuels is no greater than that of smaller volumes seven- or eight years ago. The increased volumes cost more to extract, transport and process so the net-energy yield is less.
The plunging price of crude oil does not reflect the cost of extracting it or finding substitutes but rather the paucity of return on its use. This is sensible because returns are what are supposed to pay for extraction plus a profit. What pays instead are sub-prime loans made against promises of bottomless production rather than actual remunerative use. The highest and best use for crude oil and related goods has been as subjects in a Wall Street finance shell game which is undone by the crash in crude prices …
With world-wide financial repression and the propping up of key-men everywhere, any energy crisis initially will not take familiar forms: gas lines, rationing and highway speed restrictions. Instead, the crisis will emerge as a credit crunch which is underway right now. Credit is being systematically revealed as worthless, leaving the fuel industry to provide for those elements of the fuel-use economy that can pay for themselves. This amounts to a very small fraction of current ‘use’ which is mostly for entertainment and pleasure.
It is hard to see how prices can rise in real terms from here."
http://www.economic-undertow.com/2014/12/24/peak-oil/
Somebody forgot about basic econ then...as in supply and demand.
What will happen is exactly what happens anytime there is a price war: Once enough of the competitors have bought the financial farm, the remaining players scoop up the market and set prices to their liking.
That seems reasonable. But isn't real demand falling? I read about places all over the world and there aren't many economies legitimately growing. Commodities are falling, everyone seems to be battling deflationary forces. What do you see that will support rising oil prices?
I don't know all the answers, that's why I'm here trying to learn. But the idea of low oil prices for a good while or longer seems reasonable to me.
steal your face,
+100. thank you for the link. economic-undertow is a treasure. thank you for sharing it.
There are two forces at work:
Politics/Hegemony: The Saudi Royal Family does as Washington DC commands - otherwise, there will be 200 royal heads on pikes shriveling in the sun.
The Law of Supply and Demand:
Supply: Peak Oil is a lie - there are plenty of hydrocarbons - it is only a question of the cost of getting them vs the price received for selling them.
Demand: Has World demand shrunk by 40% on year-over-year. I still heat my house in winter and cool it in summer at the same temperatures; drive the same number of miles in cars; buy the same quantity of things, like beer and bread, which require energy to produce; etc.
What you are witnessing is pure Hegemony. Every investment you have made can be crushed in the same manner. The survival of your family necessitates that you exit the existing financial system. That means, for starters, getting out of and staying out of debt.
Saudi Arabia.
No taxes, free health care, free higher education at Oxford or Harvard, house subsidies. Women never work. Gas is 10 cents.
Compare to the biggest oil producer, which is the USA.
Gas is 50 cents, actually.
Another shoe is going to drop! The current explanation is much like 911.
This mexican standoff between Saudi Arabia, Russia, and a collection of (mostly small) private fracking companies is getting interesting.
We've heard how this is a US plot against Russia.
We've heard how this is a Saudi attack on Fracking.
We've heard how this is an attack against German exports through raised input prices.
We've heard how this is apocalyptic to the US economy.
We've heard how this is barely a blip to the US economy.
We've heard how two of three in the standoff will back down or Patient Putin will nuke them.
We've heard how two of three in the standoff are doomed to failure against deep Saudi pockets.
We've heard how this is a repeat of the 1980s, where the US oil industry will be decimated because even momentarily unprofitable operations financed at interest will be immediate casualties. This, despite the world of difference between the 20% interest of the 80's Oil Apocalypse and today's ZIRP.
But as each spins "Low Oil" exclusively to their personal fantasy, what is certainly true is that on two sides there are government-oil companies, and on the third there is a rag-tag collection small and mid-sized operators long on technical know-how and short on international connections.
It is refreshing to see that contrary to all we've heard, how the strain is showing as much or more on the faces of the 'Goliaths' as on the faces of the many tiny 'Davids'.
After all, what is a shrinking rig count, next to an imploding currency, or the prospect of ISIS waiting in the drawing room?
Ok, serious question here. Does this mean that oil has bottomed and about to fly higher? This was all about sanctioning Russia/Iran via usg and saudi's sweet little deal they made but does this pain saudi is feeling mean that it's time to end this because it's not good for saudi, who is part of the deal? USD down on heavy volume, gold surging, ruble surging, this news, everyone in the world short oil and all calling for 20, 30, 40 just like how everyone was calling higher tops for anything that rises dramatically, aka... an overcrowded trade that could smack the ongoing wave riders. What do ya think?
Reagan proved deficits don't matter......didn't he?
They can set their budget on $300/barrel oil, then just divide everything by ten to get the real numbers, I don't think they're a signatory to the GAAP treaty.
I don't think it's going to be a problem for them - since they're the ones selling it on the cheap.
They've Cash in EUR, USD
They've Gold
They've Oil
They've an ever-growing Sovereign Wealth Fund...
...and they're positioned to buy out all of the Bankrupt Petrol Assets worldwide - including Shale/Fracking ones.
If they're about to reach/have reached their own "Peak Petrol", it's a strategy they may wish to engage in.
They don't need the USD. They have all the Gold, Currency, and Income Producing Assests their Aristocracy needs to live comfortably; and they can easily hire all the White Collar and Blue Collar Labor from 'round the World.
Last time I checked the Emirs of UAE were diversifying by buying up Solar Panels/Plants - looks like they want to be in the Energy Business for a Long Time...
Whoa, good thing they diversified into Camel futures! :>D