Saudi Arabia vow to stabilise oil price at $100/bbl

CGES ANALYSTS | JANUARY 2012 | SOURCE: Global Oil Insight

Saudi Arabian oil minister Ali Naimi’s statement that his country would seek to stabilise the oil price at $100/bbl could be construed as an effort to reassure the oil market, given that ICE Brent futures are presently around $110/bbl.

However, the Kingdom’s new target is considerably higher than its previously avowed ‘fair’ price of $75/bbl and above all reflects Riyadh’s growing domestic spending needs.

Saudi Arabia vow to stabilise oil price at $100/bbl

Moreover, it is $5 higher than the $95/ bbl that the CGES estimates the country requires this year to cover all its expenditure, assuming a 15% year-on-year rise in spending, and accrues an $18-bn surplus.

As such, it seems to us rather worrying to aim for an oil price that, at the very least, is not conducive to a healthier world economy and could potentially contribute to another global recession.

Despite these concerns, we believe that the OPEC basket price will indeed average approximately $104/bbl in 2012, in part due to the Saudis’ budgetary requirements.

Related article: Saudi Arabia's budget in 2012

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