Javier Blas is the FT's commodities editor
Saudi Arabia said on Monday it wanted to keep crude oil prices at around $100 (U.S.) a barrel, the first time the kingdom has targeted a “triple-digit” price and a quarter above the previous ambition of $75 suggested by King Abdullah in November 2008.
Ali Naimi, the powerful Saudi oil minister, said the world’s largest oil producer aimed to “stabilize” oil prices slightly below the current level of $111 a barrel.
“Our wish and hope is we can stabilise this oil price and keep it at a level around $100”, Mr Naimi told CNN television. “If we were able as producers and consumers to average $100 I think the world economy would be in better shape.”
Brent rose 92 cents higher at $111.36 a barrel in afternoon trading in London on Monday.
Saudi Arabia is traditionally seen as a moderate country within the Opec oil cartel. But Mr Naimi’s comments put the kingdom in line with hawks such as Algeria and Venezuela, which in the past have said they want to keep prices above $100.
Riyadh needs higher oil prices to sustain the big public rises in public spending it plans in an effort to forestall the political unrest sweeping the Middle East. King Abdullah has already announced two populist programs of handouts and boost to public spending.
The policies, at a total cost of $129-billion - equal to more than half the country’s oil revenues last year - vary from one-off bonuses for public sector workers to the promise of half a million homes at affordable prices. But the largesse failed to satisfy activists who were angry that the package of measures did not include political reforms.
The Institute of International Finance, a leading banking group, estimates that the break-even oil price the kingdom requires to balance its budget will jump from $68 last year to $110 in 2015. Only a decade ago Saudi Arabia was able to balance its budget with oil prices averaging $20-$25. In spite of high oil prices and production, Saudi Arabia has suffered a fiscal deficit for the last three years in a row.
Jawda, a Riyadh-based investment house, estimates that the kingdom’s fiscal expenditure would grow by 19 per cent this year, the biggest annual hike since 2006. “The budget highlights the government’s intention to continue to stimulate the economy,” Paul Gamble, head of research at Jawda, wrote in a note to clients.
Saudi Arabia is not alone in requiring higher break-even prices. The International Monetary Fund estimates that the break-even oil price for the United Arab Emirates has now risen above $80 a barrel, up more than $60 a barrel from 2008. Even Kuwait, traditionally the richest emirate in the Gulf, has seen a hefty increase.
Mohammed Al Hamli, UAE oil minister, last year told an industry conference said that the “reasonable” price for oil was between $80 and $100 a barrel.
In its twice yearly “Regional Economic Outlook: Middle East and Central Asia” report, the IMF warned last November that the break-even oil price was now nearly as high as current oil prices. As a result, “fiscal vulnerability has increased substantially relative to 2008,” the IMF stated in its report.