Saudi Arabia’s spending addiction is bad for oil markets

Saudi Arabia cannot continue living beyond its means indefinitely. The kingdom is projecting another hefty budget deficit this year after crude prices plummeted by about than 40% since last October. Until the Arabian petrodollar states learn to tighten their belts, oil consumers will remain vulnerable to their economic mismanagement. Saudi Arabia is doubling down on domestic spending despite falling oil revenues. Amid a volatile start to 2019 for crude markets, Riyadh is persisting with a risky economic strategy aimed at appeasing an anxious population. Success depends on reversing the slump in oil prices. Riyadh’s budget for 2019 gives the impression of a country in denial. Spending will increase 7% to a record 1.1 trillion riyals ($350 billion), while total government revenues are targeted to rise 9% to 975 billion riyals, according to the Ministry of Finance. In order to have any hope of balancing its books, analysts say the kingdom would need oil prices to trade above $84/b for the entire year, at the very least. However, the odds for this happening remain long. Few experts expect prices to hold at these levels, despite OPEC ’s deal with Russia and its allies to cut 1.2 million b/d of production starting… continue reading

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Source: CTRM Center

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