Crude Oil ( ) Brent Crude ( ) Natural Gas ( ) S&P 500 ( ) PHLX Oil ( )

Survey forecasts price of Arab Light OSP to Asia increasing $0.25-$0.60 per barrel

Saudi Arabia plans to increase the price of its crude oil to Asia next month. The increase of OPEC’s largest producer’s official selling price (OSP) of its benchmark Arab Light to Asia comes in response to robust demand for its crude in Asian markets and to higher consumption at home during the hot summer months, reports Reuters.

A survey conducted by Reuters forecast the Arab Light OSP to Asia would be raised by $0.25-$0.60 per barrel, putting it at parity with the Oman/Dubai average, which sat at $16.58 per barrel in November. The OPEC crude oil basket price, which is made up of several crude grades from OPEC’s members, sat higher at the end of November at $30.93, according to the group.

Saudi Arabia produced 10.13 MMBOPD in November, down 25.2 MBOPD from October, based on secondary sources reported in OPEC’s December Oil Market Report.  Total OPEC production grew by 230 MBOPD in November, largely on the back of increased production from Iraq.

Saudi Arabia rings in 2016 with a 15% deficit; cutting subsidies –  gasoline price to citizens going up by 50%; water and electricity are next; roads/bridges face cuts

With 90% of its overall revenue coming from oil exports, lower oil prices have cut deep into Saudi Arabia’s budget. Despite this, the country has continued its strategy of defending market share over price, a decision that meant the kingdom ran a deficit of about 15% of GDP in 2015.

In response, the kingdom cut its 2016 budget by about 14% to $225 billion. Saudi Arabia is still expected to post a budget deficit of $87 billion in 2016 even with its current spending cuts.

As part of its strategy to cut expenses, the Saudi government has started to target subsidies and benefits to its people. On December 29, the kingdom decreased its subsidy on gasoline, raising the price to $0.24 per liter (about $1.10 per gallon), 50% higher than it was previously.

Other subsidies could face the ax soon as well. Water and electricity prices are expected to go up, and the government is scaling back spending on roads, buildings and other infrastructure, reports CNN.

Taxing citizens may be the next step

Saudi Arabia may also be forced with implementing taxes in order to help bridge the gap in its budget. Traditionally, the monarchy has not taxed the people, a move that gives it considerable political sway.

“Part of the leverage the regime has had on their people is that they don’t impose taxes and therefore people don’t expect representation,” said Robert Jordan, a former U.S. ambassador to Saudi Arabia. “But once they pay taxes, you’re likely to see an increase in political unrest.”

Nearly 90% of Saudis are employed by the government, and official statistics put unemployment near 12%, though it could be higher since many Saudis don’t look for work because of strong unemployment benefits coming to them. Cuts to government spending could lead to higher levels of unemployment, lower benefits and increasing tensions between the Saudi royal family and the people of Saudi Arabia.

The execution of 47 prisoners in Saudi captivity over the weekend is a warning sign that the Saudis will not tolerate dissent, said Jordan.

Tensions spreading across the Middle East

Included in those executed last Saturday was Shia Muslim cleric Nemer al-Nemer, whose death sparked outrage in Tehran where the Saudi embassy was attacked. Saudi Arabia and several of its Sunni Muslim allies cut diplomatic ties with Iran following the attack on the embassy. Al-Nemer led antigovernment protests against Saudi Arabia during the Arab Spring in 2011.

The latest salvo of political bad-blood highlights the strain between the members of OPEC. The group seems to be increasingly splintered as Saudi Arabia continues to spearhead a strategy of higher production, causing less financially stable OPEC members to suffer under lower oil prices.

“Cooperation on oil was meant to be the cornerstone for better relations between Iran and Saudi Arabia,” Dr. Hossein Askari, Iran Professor of International Business and International Affairs at The George Washington University, told Oil & Gas 360®. “But I don’t see any chance for cooperation in the future.”


Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.