Saudi and Kuwaiti Price Floors jump
>>>thx to sophocles at iV ... Kuwait is giving population money and FREE FOOD for the next 13 months!!!<<<
By Anthony DiPaola and Grant Smith
April 15 (Bloomberg) -- Saudi Arabia’s breakeven price for
oil jumped an estimated 23 percent after the kingdom promised
the biggest public-spending increases in three decades, creating
a new floor for crude as it trades near a three-year high.
More-generous benefits promised by King Abdullah will cost
$129 billion over the next several years, according to John
Sfakianakis, chief economist at Riyadh-based Banque Saudi
Fransi. The outlays will add $15.50 a barrel to the price OPEC’s
largest producer needs to balance its budget, according to the
median estimate of analysts surveyed by Bloomberg News.
The Saudi king announced higher subsidies in February and
March for housing and benefits to military and religious groups
supporting his ban on protests. The perks are meant to prevent
the kind of unrest that halted oil output and imperiled Muammar
Qaddafi’s rule in Libya, holder of Africa’s largest crude
reserves. The increase gives the Saudis less leeway in playing
their traditional role of using spare capacity to temper prices.
“Higher spending has pushed up the breakeven prices,”
Jarmo Kotilaine, chief economist at National Commercial Bank in
Jeddah, said in an April 6 e-mail. “Ultimately, this will be a
balancing act, because they don’t want to reach a point where
prices begin to erode demand.”
The kingdom now needs oil to sell for at least $84 a barrel
to balance its budget, according to the Bloomberg survey of six
analysts. That’s up from a median of $68.50 a barrel before the
handouts, they estimated. The survey included Sfakianakis,
Kotilaine, Shady Shaher of Standard Chartered Plc in Dubai, Brad
Bourland of Jadwa Investments in Riyadh, Leo Drollas of Centre
for Global Energy Studies in London and Francisco Blanch of Bank
of America Merrill Lynch in New York.
Kuwait’s Free Food
Middle East turmoil has also spurred Kuwait, the fifth-
biggest producer in the Organization of Petroleum Exporting
Countries, to sweeten benefits for its population. Each Kuwaiti
citizen will get 1,000 dinars ($3,617) and free food for 13
months, the state news agency KUNA reported on Jan. 18. Kuwait’s
breakeven oil price has risen to $75 a barrel, Credit Agricole
said in a report on April 6.
OPEC members sold crude at $77.45 a last year, according to
the average price of 12 grades produced by the group. Arab
Light, the Saudi grade included in the OPEC basket, sold to
North American customers last year at an average of $80.30 a
barrel and to Asia at $78.15, according to Bloomberg data.
Brent crude, the European benchmark, has surged 29 percent
this year amid a wave of upheavals that swept two regional
leaders from power. Brent was 1.1 percent higher at $123.64 on
London’s ICE Futures Europe exchange at 11:06 a.m. New York
time. It reached $127.02 on April 11, the highest price since
April 2008. West Texas Intermediate crude is up 19 percent,
trading today at $109.12 on the New York Mercantile Exchange.
Budget Surplus
Those prices are well above the Saudi minimum, indicating
it may achieve a budget surplus this year even with the more
lavish spending, Shaher of Standard Chartered said in an April
13 interview.
“We think high oil prices are here to stay,” Blanch of
Merrill Lynch said yesterday in a note. Saudi Arabia requires an
oil price of $95 to cover government spending, he said.
The kingdom’s room to maneuver declined this week, with the
price of Brent crude dropping 3.2 percent after the
International Monetary Fund said higher oil prices are
endangering the economic recovery and the International Energy
Agency cited signs that demand for oil may decline. Analysts at
Goldman Sachs Group Inc. forecast a “substantial pullback” on
April 12 that may cut the price of Brent crude to $105 a barrel
in coming months.
Restricted Supplies
Saudi Arabia is “terrified” in the wake of its higher
budget commitments that prices will collapse, especially if it
brings too much additional oil to market, Drollas said. “They
need higher prices to cover spending, and they restrict supplies
to get that,” he said April 12.
The kingdom cut production by 300,000 barrels in April,
said Sfakianakis, who also acts as a government adviser. Saudi
Arabia started reducing output this month in response to a
slowdown in demand from Japan, he said.
The country raised its output last month by 300,000 barrels
a day to 9 million, according to a Bloomberg survey of
producers, analysts and oil companies who follow output. That
was about 949,000 barrels more than its target of 8.051 million.
OPEC, which supplies about 40 percent of global oil, has
spare capacity of about 3.91 million barrels a day, the Paris-
based International Energy Agency estimated in its monthly Oil
Market Report released on April 12.
‘Moot Point’
Saudi Arabia will use its excess capacity to help meet any
shortage in supply or surge in demand, Oil Minister Ali al-Naimi
said on April 9, according to the official Saudi Press Agency.
Crude prices of $70 to $80 a barrel would be “fair” for
producers and consumers alike, he said at a conference in Riyadh
on Feb. 22.
That price range is now a “moot point,” given the current
budget, said Greg Priddy, an analyst at Washington-based Eurasia
Group, in an investor note on April 13. While Saudi policy will
“seek to maintain balance in the physical oil market and
prevent runaway escalation in prices,” he wrote, this longer-
term focus may “fuel short-term market doubts” about the
government’s willingness to boost output.
Saudi Oil Ministry officials couldn’t be reached for
additional comment this week.
Saudi Arabia’s breakeven level could rise as high as $106 a
barrel this year if the government overspends its original
budget by the same 15 percent that it did last year, Shaher said
in a research note.
The Institute of International Finance estimates the break-
even level may rise to $110 a barrel by 2015, the Washington-
based banking industry trade group said in a March 30 report.
The increase in Saudi Arabia’s social spending amounts to
almost a quarter of the nation’s economic output for 2011,
Sfakianakis wrote in an April 4 research note. The handouts add
45 percent to the budget the government had forecast for the
year and mark “the fastest pace of overspending in three
decades,” he said. |
