Saudi 2015 Budget Based On Oil Price Around $60 – Analysts

Saudi Arabia’s 2015 state budget assumes an oil price close to current levels of around $60 a barrel for Brent crude, a shift from past budgets which were based on prices well below market levels, analysts say.

The kingdom doesn’t reveal the oil prices which it uses to calculate its annual budgets. So analysts estimate them, making assumptions about several other variables such as planned oil exports and production for the following year.

For the 2015 budget, announced on Thursday, four analysts’ oil price estimates are in a range of $55 to $63.

That does not mean Saudi Arabia necessarily expects such prices next year — Finance Minister Ibrahim Alassaf said on Thursday there was a great difference of opinion over when prices would start rebounding, with some people predicting the second half of next year and others 2016.

Instead, the budgeted oil price is an accounting assumption which the government uses to set a baseline for next year’s revenues. If Brent crude averages more than $60 next year, Saudi oil revenues will probably be larger than projected; if Brent is below $60, revenues will be smaller.

Oil prices have plunged almost 50 percent since June, pressuring the finances of producer countries such as Saudi Arabia, the world’s largest oil exporter.

Its 2015 budget plan projects record spending of $229.3 billion, up 0.6 percent from the 2014 budget, while total revenues are projected to drop to $190.7 billion — leaving a $38.6 billion deficit.

In past years, Saudi budgets commonly based their calculations on oil prices far below current levels. For example, the 2014 budget assumed an oil price below $70; when the budget plan was announced, Brent crude was trading at $111.

In an interview with Al Arabiya television on Thursday, Alassaf confirmed his ministry had departed from past practice and assumed an average 2015 oil price close to current levels in its latest budget.

“We were realistic in our estimates for next year’s revenues in light of current and expected developments in the oil market. Maybe over the past years I agree we were conservative, but this year we were realistic,” he said.

ESTIMATES

Leading Saudi investment bank Jadwa Investment said the 2015 budget was consistent with an average Saudi export crude price of $56 a barrel next year, equivalent to a Brent crude price of roughly $60, and oil production at 9.6 million barrels per day (bpd), in line with the current level.

Analysts at National Commercial Bank (NCB), the kingdom’s biggest bank, made a slightly different calculation, saying they believed the budget was based on a Saudi oil price of $61.

The oil price assumption in Saudi Arabia’s budget was reduced for the first time since 2009, both Jadwa and NCB said.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, said the budget seemed to be assuming a Saudi oil price of $55 and output at 9.5 million bpd. Emad Mostaque, strategist at Ecstrat, an emerging markets consultancy, estimated $63.

Mostaque noted that non-oil revenues this year were $30.7 billion; assuming the same amount next year implies the government projects oil revenues of $160 billion in 2015, or $438 million a day.

Saudi Arabia heavily subsidises its domestic fuel sales so Mostaque based his oil revenue assumptions on crude exports, which he thinks will be equivalent to 6.9 million bpd next year, in line with current exports. While actual exports may drop next year, this would be offset by higher revenues from new Saudi refinery operations that have just come on line.

Dividing daily exports into revenues gives an oil price assumption of $63.

Jadwa’s oil price estimate is lower partly because it assumes non-oil revenues — mainly fees for government services and customs tariffs — will increase next year in line with a strong economy, so less of the government’s total revenue projection will come from oil.