IMF's latest assessment: Saudi Arabia may now require three-digit oil prices!

Golden10 Data ·  Apr 19 17:56

As Saudi Arabia takes the lead in cutting production, the IMF anticipates that it may now require three-digit oil prices to support domestic investment.

The International Monetary Fund (IMF) said that due to OPEC+ leaders leading production cuts, the break-even oil prices needed by Saudi Arabia this year will be higher than previously anticipated.

The IMF said in its regional economic outlook report on Thursday that Saudi Arabia needs an average oil price of 96.20 US dollars per barrel to balance the budget, and the premise of this price is that the country's crude oil production this year is stable at around 9.3 million barrels per day.

Saudi Arabia is leading production cuts within OPEC+ to avoid global crude oil surpluses and support prices. The country has cut production by 1 million barrels per day since July last year. This measure has helped boost the market, but since Saudi Arabia sacrificed sales, it needed higher prices to make up for it.

However, the agency's chief emerging markets economist believes, “Once Saudi domestic investment is taken into account, the Saudi government may need oil prices close to $108 per barrel this year to finance its spending.”

OPEC+ will meet on June 1 to consider whether to continue to limit supply in the second half of this year. As the Middle East conflict boosts the market, some analysts expect OPEC+ may begin to ease the scale of its production cuts.

Meanwhile, Saudi Arabia needs significant revenue to fund Crown Prince Mohammed bin Salman's ambitious transformation plan, which involves spending hundreds of billions of dollars, from future cities like Neom to top sports players.

The Saudi government has used borrowing as a way to cover part of the deficit. It sold $12 billion in bonds in January, which is more than half of the projected fiscal deficit this year.

Foreign media reported this week that Neom is also planning to issue its first riyal bonds later this year to seek more sources of funding.

So far, foreign direct investment has not met Saudi Arabia's expectations. The government hopes that by 2030, the annual amount of foreign direct investment will reach 100 billion US dollars. This figure is about three times what it was in the past, and about 50% higher than India's current foreign direct investment.

According to IMF calculations, break-even oil prices in OPEC+ member countries Kazakhstan and Iran are also rising, but the balance of payments of several other countries in the group has remained stable or even declined, because these countries have not made as much production sacrifices as Saudi Arabia.

According to the IMF, assuming Saudi Arabia reduces the scale of production cuts next year and restores production to 10.3 million barrels per day, its break-even oil price will drop to 84.70 US dollars per barrel.

The translation is provided by third-party software.

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