Oil Holds at Near 11-Year Low on Weak Demand, Growing Supply

Oil prices have fallen by more than half ever since that November 2014 decision, with Brent crude, the worldwide benchmark, trading at about $37 a barrel on Wednesday in London, its lowest level since the 2008-09 financial crisis.

The government said expenditure reached 975 billion riyals (US$260 billion) in 2015, 13 per cent above its target.

The situation is so bad that the Saudi government said petrol prices, which is usually very cheap in Saudi Arabia because of the glut of oil it produces, may increase by 50% and diesel, electricity and water prices will also increase.

Revenue from oil sales in the kingdom will make up about 70 percent of the budget next year, John Sfakianakis, a Riyadh-based economist and a former adviser to the government, said by phone.

Jadwa also noted that the oil price used to calculate Saudi Arabia’s oil income in 2016 will be set at United States dollars 40.3 a barrel, down from USD 64.8 a barrel this year. “It’s very clear that Saudi Arabia will continue with its oil policy of defending its market share in 2016 as it prepared itself for low oil price environment”.

It comes after the International Monetary Fund warned in October that Riyadh would run out of money within five years if it did not tighten its belt.

Oil prices fell Monday following downcast economic data from China and Japan and a Saudi budget plan that suggested the petroleum-exporting giant is planning for oil prices to stay low.

The trend of lower energy prices is tied directly to supply and demand, and with suppliers looking to keep production elevated, USO could decline further.

His appearance at the news conference with two other ministers, during which he shared his views on oil prices and market assessment, was seen as a possible signal he could be named oil minister when Naimi, 80, eventually retires. In 2015, the country recorded a record deficit of $98 billion.

WTI for February delivery was at US$36.77 a barrel, down 4 cents, on the New York Mercantile Exchange at 11:41 am in Seoul.

Saudi Arabia is counting the cost of a policy of allowing the oil price to drop as it seeks to drive less competitive producers such as United States shale oil fields out of business. “What’s clearly been demonstrated in the past year is that if there’s oversupply, there’s downward pressure on prices”.