Saudi Needs $70 Oil to Balance Budget, Reserves

Saudi Arabia will have to engineer a 34% increase in average oil prices next year if it is to balance its budget and avoid falling back on its dwindling foreign currency reserves, International Monetary Fund data showed.

The Washington-based IMF said in a report that Saudi Arabia, OPEC’s biggest oil producer, would require a crude price of at least $70/b in 2018, compared with an average $52.4/b for Dated Brent achieved so far this year, if it is to avoid a further drain on its fiscal accounts, Platts reported.

The data highlights the pressure Saudi Arabia is under when compared with its peers to extend OPEC’s current production-cut deal despite two years of deep spending cuts and austerity measures.

Riyadh also requires higher prices to bolster the valuation of state Saudi Aramco ahead of an initial public offering or private placement expected by the end of 2018.

Riyadh hopes the sale of a 5% stake in the company will raise $100 billion for the public finances, valuing the producer at $2 trillion.

“Whatever schism was there previously is still there now, especially with an IPO,” said Gary Ross, executive chairman and head of global oil at PIRA Energy, a division of S&P Global Platts. “The Saudis will want higher prices than UAE and Kuwait.”

A Platts analysis of the IMF’s “Regional Economic Outlook for the Middle East and Central Asia” also shows Saudi Arabia has fallen further behind its regional neighbors in the race to adjust their economies for lower oil prices and become more efficient.

Five out of the seven other Middle East countries in OPEC surveyed by the IMF require average prices below the current $61 level, while the fiscal breakeven gap with Saudi Arabia could widen to $12.50/b next year from $10.40/b in 2016.