Economic outlook: Saudis need $70 oil to break even
Saudi Arabia needs oil prices at $70 per barrel in 2018 in order to break even, the International Monetary Fund (IMF) said last month in its Regional Economic Outlook on the Middle East and Central Asia.
The Saudi break-even oil price to achieve zero deficit in 2017 is $73.10, according to the IMF, compared to $96.60 for 2016. Among the oil exporters in the region, Saudi Arabia has cut its breakeven oil price by the most between 2016 and 2017, but its budget breakeven price of oil is not the lowest in the region. The lowest breakeven price for 2017 is in Kuwait, $46.50, followed closely by Qatar at $46.80, according to IMF estimates.
The medium-term oil price assumption, based on the futures market, is that oil prices will remain broadly with current levels of $50-$60, the IMF says.
“Spillovers from the low oil price environment continue to weigh on non-oil growth, which is expected to remain below historical averages,” the IMF noted.
Budget deficits in the oil exporters soared to a combined 10.6 percent of GDP last year from 1.1 percent of GDP in 2014. Deficits are now expected to halve in 2017, thanks to a modest recovery in the price of oil and the countries’ efforts to cut budget deficits.
“But since oil prices are expected to remain in the range of $50-60 a barrel, oil exporters will need to sustain — and in some cases intensify — their budget deficit-reduction efforts,” the IMF said.
Estimates for both oil and non-oil growth of the oil exporters in the Middle East, North Africa and Pakistan (MENAP) region are now “slightly weaker” than IMF’s projections from May this year.
Not only are low oil prices leading to deficits, but they are also seen as dampening economic growth in the medium term. Non-oil growth in the Gulf Cooperation Council (GCC) members — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE — is seen at 3.4 percent in 2020, compared to 6.7 percent in the period 2000-2015, the IMF said.
“None of the MENAP oil exporters — even countries with projected medium-term surpluses — are accumulating sufficient resources to protect the economic well-being of future generations once hydrocarbon resources are exhausted,” according to the fund.
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