SAUDIS BUDGETING LESS THAN $53

I RECENTLY wrote that the oil market was misinterpreting Saudi Arabia’s intentions for oil prices in 2017.

The Saudis have decided to “nudge along” the rebalancing of supplies with demand during 2017. It seems to me that he would like to fine-tune Opec’s market intervention, so as to not create massive hedging opportunities for US shale oil, which would result in a counterpunch to his strategy to firm-up prices... Saudis are looking for $55/b in 2017 and $61 in 2018.”

One headline about the budget that raised eyebrows was that the Saudis are budgeting revenues to increase by 46 per cent in 2017. Applying that increase to an oil price average of $43 in 2016 implies an average price of almost $63 in 2017, were the increase due solely to higher world oil prices.

I reviewed the 2017 budget and found that it Saudi said: Total revenues are expected to reach SAR 692 billion in 2017, a 31 per cent increase compared to initial projections this year. Oil revenues are 20 estimated at SAR 480 billion, 46 per cent higher than the 2016 projections... The increase in projected revenues and expenditure is primarily due to the energy pricing reform programme, although this will be partially offset by the allowances for those citizens who need government support.”

Saudi Arabia’s Energy Minister Khalid al Falih said last Thursday that the kingdom would continue its policy of reforming domestic energy prices from 2017 until 2020, and prices would gradually be linked to international benchmarks. The Saudis had received petrol subsidies, part of the welfare state that forms a social contract with the kingdom’s 20M nationals. [Robert Boslego — Seeking Alpha]