OPEC deal set to improve Saudi fiscal position

OPEC's recent agreement to cut oil output will likely improve Saudi Arabia’s fiscal position as oil prices have jumped over 15 percent amid a 4.6 percent decline in production, Al Rajhi Capital said in a recent note.

The kingdom’s oil export revenue is forecast to rise above the September level of SAR 44 billion, bolstered by higher average OPEC prices during October and November.

“Based on the current production and export levels, every one US$ increase in prices will increase Saudi’s monthly oil revenue by SAR 1 billion and the recent surge could add about SAR 10 billion in oil export revenue for the Government,” the brokerage firm added.

Reduced downside risks to oil prices will also enhance the Saudi government’s ability to implement its reform plans while providing more room for fiscal measures and reducing short term impacts on economy.

Al Rajhi Capital said it expects the market to have more balance as the agreed production cuts will prevent further build-up in oil inventory, which remains at higher compared to historical levels.

By the end of November, the oil cartel agreed to curb its production by around 1.2 million barrels a day (mbd) to 32.5 million mbd, for six months starting from January 1, 2017, extendable for another six months based on market conditions at that time.