Despite its fear of renewable energy, Saudi Arabia: Our economy is jumping with the return of the oil market

Despite its fear of renewable energy, Saudi Arabia: Our economy is jumping with the return of the oil market
Despite its fear of renewable energy, Saudi Arabia: Our economy is jumping with the return of the oil market

When the “OPEC +” conference, which is the oil producing countries, is held, there will be an opportunity for the Saudi president to show her relief. After 18 months of reducing oil production in the wake of Corona, it may return to the level of production that was before the crisis, 9.8 million barrels per day, from the beginning of this month, in view of the recovery in demand and the global economy.

In addition, with the gradual return of oil supply to avoid creating a large surplus, the Saudi Energy Minister, Prince Abdulaziz bin Salman, has raised crude oil prices significantly, $80 a barrel. According to analysts’ expectations, this price will reach approximately $90.

As a result, the kingdom’s oil revenues jumped to a record high in the last three years, and with it the state budget deficit for this year will shrink to 2.7 percent of the gross domestic product, while the pessimistic forecast was 4.5 percent. Saudi Arabia expects the budget deficit for 2022 to shrink to 1.6 percent of the gross domestic product, following incomes of 903 billion riyals ($240 billion at the current exchange rate) in 2022, an increase of 4.5 percent compared to the forecast in 2020, according to the Ministry of Finance. . Saudi Arabia will keep expenditures in the budget unchanged, 955 billion riyals.

Half of the kingdom’s income is from oil, despite efforts by Crown Prince Mohammed bin Salman to diversify the economy into areas such as tourism and production. Oil extraction in Saudi Arabia will increase significantly in the coming year when the cartel restrictions that were implemented at the beginning of the Corona crisis are removed.

The sudden rescue provided by the Saudi oil market provides breathing space for Saudi leaders, after incomes decreased during the Corona period and led to a tripling of the added value and reducing the salaries of public employees, steps that led to public anger. But the new budget projections reflect a conservative approach in distributing oil and other revenues in order to prepare for the dangers of a new outbreak of the epidemic,” this was stated in the preliminary budget document published by the Saudi government.

Saudi Arabia will spend this year more than one trillion riyals from its government budget. The budget is expected to undergo a reduction in the next two years before rising in 2024. Forecasts show a small surplus in the budget, which is 1 percent of the gross domestic product in 2023.

The finance staff’s adherence to budget plans for 2022-2023 “suggests a focus on belt-tightening,” said Monica Malik, senior economist at Abu Dhabi Commercial Bank.

real threat

“OPEC+ has had a very good year,” said Ben Lowcock, joint director of oil trading at Tripengora, which is engaged in the trade. “They maneuvered very well.”

The current situation is fundamentally different from the situation in March 2020, when the collapse of oil prices led to intense hostility among OPEC + members, who competed with each other for customers. This harsh memory has evaporated, it appears, and the 23 members of the agreement jointly led by Saudi Arabia and Russia will meet.

If there is a threat to the delicate balance achieved by OPEC, it will come from the positive trend, the market may heat up and prices will rise quickly.

The pact’s member states have indicated that they will continue to moderately raise production. It appears that it will approve an increase of 400,000 barrels per day in November. The market has changed a lot since the roadmap was drawn up in July.

The shortage of natural gas, which made its prices jump in certain parts of the world to the equivalent of $190 per barrel of oil, and this jump urges the transition to oil for heating and industry, and increases demand dramatically. Oil production in the United States is still recovering due to Hurricane Ida, which cut 35 million barrels per day of production in the Gulf of Mexico a month ago, which corresponds to two months of adding production to “OPEC +”.

Consumers are under stress

The pressure among consumers in oil and gas importing countries is evident, especially in the face of predictions of a cold and harsh winter. China has previously ordered the major energy companies to ensure supplies at all costs. The US administration said it reminded OPEC members that they must support the economic recovery. National Security Adviser J. Salban met with Prince bin Salman last week.

“OPEC is under heavy pressure from Washington to open the oil taps and lower the price hike,” said Halima Croft, senior strategist at RBC Capital Markets (a bank in Canada). “Increasing extraction by more than 400,000 barrels per day is on the agenda at the meeting that will be held tomorrow.” she added. “This is a position that the world’s largest energy trader, Vitol Group, is involved in. Not only is demand rising due to the shortage of natural gas, but supply forecasts are also constantly declining as the prospect of reviving exports from Iran under the nuclear deal is fading,” said Chris Pike of Vitol Group.

Washington and Tehran are participating in contacts to revive the nuclear agreement, in the framework of which sanctions on the export of Iranian oil will be lifted. But these contacts have not progressed so far. Therefore, the 1.4 million barrels per day of Iranian oil that traders expected to reach the market at the end of 2021, is and will continue to be absent from the market.

A number of delegates from the OPEC + member countries said behind the scenes that the increase in production on Monday may be more than the planned 400,000 barrels. Scenarios for a larger lift are being examined, a senior source said.

Saudi Arabia itself is not interested in a significant increase in oil, which reaches $100 per barrel. When the price of oil rises, demand decreases, and it gives support to extracting oil from shale plates in the United States, according to informed sources in Saudi Arabia.

A sharp rise in crude oil prices a few weeks before the climate summit in Glasgow, in which world leaders will discuss halting the climate crisis, will act as a catalyst to support the transition to renewable energy.

But Saudi Arabia is not yet convinced that raising oil prices above $80 a barrel last week reflects a real shortage of supply, these sources said. A plausible scenario is that OPEC+ will wait to see if the shortage of natural gas increases oil demand significantly, before deciding to speed up production, said Amrita Sen, a senior oil analyst and co-founder of consultancy Energy Aspects. These steps “will be taken in the future, not now.”

by: Grant Smit et al

Ha’aretz 3/10/2021

For Latest Updates Follow us on Google News

PREV Officially .. Al-Khatib announces his candidacy in the Al-Ahly elections .. and an amendment is made
NEXT Millions of “Android”, “Windows” and “iPhone” users may lose access to the Internet