OPEC+ cuts, low oil prices to weigh on Saudi Arabia’s 2020 revenue

Saudi Arabia has projected oil revenues of 513 billion riyals for 2020. (File photo :AP)

Saudi Arabia expects its revenue to fall in 2020 as low oil prices and an OPEC+ deal to further deepen output cuts hit its crude oil sales.

Last week, Saudi Arabia announced its 2020 budget, which sees a revenue of 833 billion riyals against a total expenditure of 1.02 trillion riyals. The country’s 2019 revenue estimate was 917 billion riyals.

According to Riyadh-based Jadwa Investment, an oil price of $60 per barrel and crude oil production of 9.8 million barrels per day in 2020 are consistent with Saudi Arabia's oil revenue projections of 513 billion riyals, which is down 14 percent year-on-year.

The International Monetary Fund (IMF) had projected a breakeven price of $80 to $85 a barrel for 2019 and $85 to $87 for 2018.

Analysts at Jadwa Investment expect “a more subdued outlook on oil markets” to be reflected in “overall government revenue for 2020 and subsequent years.”

Oil prices are down 13 percent since touching the $75 a barrel mark in April this year.

On December 5, OPEC and allied oil exporters – collectively called the OPEC+ – took financial markets by surprise with a deeper-than-expected cut in oil supply, triggering a jump in prices.

“One thing we can say at this stage is that the combination of a return to austerity and lower oil output will depress GDP growth,” London-based consultancy Capital Economics wrote in a note on Saudi Arabia’s latest budget.

The new squeeze on exports is seen to remove another 500,000 barrels a day from world markets from the beginning of January. Saudi Arabia pledged to continue cutting 400,000 barrels a day if other producers remained committed to their part of the agreement.

A prolonged trade war between the United States and China has also hurt the demand for billions of dollars’ worth of goods and introduced high levels of volatility in global financial markets.

While OPEC-led cuts have provided temporary relief to oil markets, it may not have a lasting impact, the International Energy Agency’s outlook shows.

The Paris-based agency said global crude oil inventories could rise despite the deal.

“Despite the additional curbs and a reduction in our forecast of 2020 non-OPEC supply growth to 2.1 million barrels per day (bpd), global oil inventories could build by 700,000 bpd in Q1 (first quarter) 2020,” it said in a report.

While troubles in the oil markets mount, Saudi Arabia will gain from parts of the economy that are not related to the fossil fuel.

According to the budget, non-oil revenue is expected to reach 320 billion riyals in 2020, up 1.6 percent from an expected 315 billion riyals in 2019.

“The surge in non-oil revenue reflects the government’s ongoing efforts to diversify its income streams and reduce dependency on oil,” KPMG said in a recent report.

The Kingdom, which is in the middle of the Vision 2030 economic reform plan, successfully listed Saudi Aramco on its stock exchange on December 11.

The $25.6 billion in proceeds from the record-breaking IPO are expected to be used by the country’s sovereign wealth fund to make investments in the economy. Analysts have speculated that the funds could also be used to fund the Kingdom’s deficit, estimated at 187 billion riyals for 2020.

“The government announced a return to austerity … but the Aramco proceeds could be used to soften the blow for the economy,” said James Swanston from Capital Economics.

Last Update: Wednesday, 20 May 2020 KSA 09:57 - GMT 06:57