Saudi revenues may rise by $10 bln if oil hits $60/bbl

An increase in oil prices to about $60 per barrel (bbl) could help improve Saudi Arabia’s economic performance and shrink its budget deficit in 2017, Jadwa Investment said in a note on Tuesday.

After the OPEC agreement on production cuts last week, Saudi Arabia’s oil production is expected to be around 10 million barrels per day (mbd) in 2017.

At a price of $60/bbl, the kingdom’s export revenues would rise by $10 billion versus Jadwa’s current forecast, the brokerage said, adding that it would expect a “marginal improvement” in its forecasted external balance for the kingdom.

Based on this calculation, the firm said it expects that current account deficit may improve to 2.2 percent of GDP (versus 3.1 percent of GDP), and the budget deficit shrinking to 4.8 percent of GDP, instead of the current 5.8 percent of GDP.

On Nov. 30, OPEC agreed to cut its own production by 1.2 mbd to 32.5 mbd. Oil prices rose by 8 percent after the announcement and could rise even further in the short term.

Whether prices will remain high will depend on the producer group’s commitment to the cuts as well as potential rises in US shale oil supply, the note said.

“If we disregard the risks to the current deal, and assume that there are disciplined cuts at agreed levels, then we would expect to see more aggressive oil market rebalancing than previously,’’ analysts at Jadwa wrote.

A continuation of the cartel’s agreement beyond the initial six months could result in tighter oil markets in 2017, with oil balances in deficit by 730 thousand barrels per day, compared to a surplus of 1 mbd with no OPEC action.

However, due to the hurdles mentioned above, Jadwa said it would not be revising its economic forecast just yet, noting that it “will be monitoring developments closely.” The firm’s current forecast is based on oil prices of $55/bbl.