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Kingdom’s oil revenues to exceed SR 1 trillion mark


Wednesday 24 October 2012

Last Update 24 October 2012 1:57 am

Despite the prevailing global economic gloom, the Saudi economy continues on a solid growth path. While this year expansion is not likely to match that of last year, it is more likely to register one of the highest growth rates among the G20 countries. Four factors have maintained a buoyant growth this year, namely (i) the hydrocarbon sector, (ii) expansionary fiscal policy with a significant positive impact on the non-oil private sector, (iii) solid domestic consumption and (iv) supportive bank lending to the private sector, according to a report by Jadwa Investment.
In light of the recent domestic and international data releases and oil market conditions, Jadwa increased its projection for real hydrocarbon GDP growth. In addition, higher production and higher oil prices ($109 per barrel) would generate record-high oil revenues of SR 1.08 trillion, or 44.3 percent of GDP, leading to a fiscal surplus of SR 347.7 billion in 2012, some 5 percent higher than earlier forecast.
At the same time, the current account balance would benefit from $ 322.6 billion of oil exports, leading to a surplus of $ 167.5 billion or 25.8 percent of GDP.
The report said an upward revision to our oil production forecast is the main reason for the increase in real GDP growth projection from 5.3 percent to 5.8 percent in 2012. While Saudi Arabia’s crude oil production would average 9.6 million barrel per day (mbpd) in 2012, the actual production level has been raised to a near record high this year with two months (April and June) recording an average production level above 10 million barrels per day (mbpd). The year-to-August production level has reached 9.9 mbpd or 8.5 percent higher than the same period of last year.
In addition, Minister of Petroleum and Mineral Resources Ali Al-Naimi indicated last month that while the oil market is well supplied, the Kingdom stands ready to increase its production level to meet additional demand and to moderate prices. According to Jadwa, Saudi crude production to remain elevated throughout the rest of the year particularly as the market conditions are not likely to go through a significant change. Thus it revised annualized average production level to 9.9 mbpd or 6.3 percent year-on-year. This increase in production is likely to translate into a higher real oil GDP growth, which is expected to expand by 6.1 percent year-on-year in 2012 compared to 5.1 percent previously.
In addition to the increase in the oil production, the Kingdom is likely to benefit from firm oil prices. Jadwa revised its forecasts for Brent to $ 114.4 per barrel and $104 per barrel for WTI or 3 percent and 9 percent higher than last year’s level, respectively. This will translate to $109 per barrel for the Saudi oil export price in 2012 compared to previous forecast of $100 per barrel.
Higher oil prices and production will boost the Kingdom’s budgetary position further. Despite elevated spending, Saudi Arabia will continue to record fiscal surplus, the report said. As oil revenues are the source of around 90 percent of budget revenues, higher oil prices will generate an all-time-high oil revenue of SR1.08 trillion or 4 percent higher than last year’s actual revenues.
Combined with higher nonoil revenues on the back of expanding nonoil sector, this will lead to total revenue of SR1.19 trillion for the year or 6 percent higher than last year’s level.
Such revenues are already sufficient for the government to finance all its planned spending this year comfortably, the Jadwa report said. It said the fiscal balance to reach SR 347.7 billion this year (14.3 percent of GDP) compared to SR291 billion (13.5 percent of GDP) in 2011. As a result, the government to continue to reduce its public debt from 6.3 percent of GDP in 2011 to 5.6 percent this year.
The external position will also benefit from higher oil prices and production. It puts the current account surplus at $ 47.6 billion, 28.7 percent higher than level of the first quarter of 2011. In addition, services payments have increased by 23 percent year-on- year on the back of stronger domestic demand.
Imports over the first eight months of the year are 8 percent higher than in January to August of last year. Based on production and estimated price data that oil exports averaged $ 24.6 billion per month so far this year or an increase of 9.7 percent compared to the average of last year, while nonoil exports are up by 4 percent year-on-year in the first eight months, despite a significant decline in August.


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