One of the most important figures that factors into Saudi Arabia’s budget each year isn’t actually published by the government. What the Kingdom annually assumes will be the average price of oil is crucial for government and fiscal planning. With the Kingdom’s economic diversification goals still yet to be realized, oil revenues are (almost) everything for Saudi Arabia’s fiscal future.
So, following a second half of 2014 that saw oil’s price halved from July highs, the mystery of what Saudi Arabia believes is their breakeven price for oil is particularly intriguing this year. This might explain why analyst’s predictions now appearing in international media outlets are all over the map.
In a reporter’s survey of four analysts for Reuters on December 28th, Andrew Torchia wrote that all four had put breakeven price from $55 to $63.
But John Sfakianakis, GCC Regional Director for Ashmore Investment which hired the former advisor to the Finance Minister and frequent contributor to SUSTG.com to establish an office in Riyadh, said that the government “is probably assuming an oil price of $80 a barrel, and will be seen as a sign of confidence in the market.”
In an in-depth interview with SUSTG’s Richard Wilson filmed yesterday, Sfakianakis noted that the breakeven price is a “complicated calculation” but that it is likely much higher than estimates by other analysts.
“I believe that when it comes to total announced expenditures for 2015 the estimated price required to meet that number (SR 860b) is roughly $80 for Brent Crude.”
“When we look at expected revenues (SR 715b), that figure would require a Brent price of $75,” Sfakianakis said. Although analysts have varied on their estimates, “there is a good amount of group think, but the proof is in the pudding. One has to wait and see what we get, but that’s my estimation.”
Sfakianakis added that the high budget spend in 2015 was a signal of confidence to regional and international markets and the private sector in Saudi Arabia. A retreat on spending, in light of oil’s price decline since July, would send the wrong message to the private sector.
The interview will be published in four parts on Friday, January 2nd on SUSTG’s YouTube channel.
