The increase in output and rising prices will result in revenue increases of $39 billion for the Kingdom.
Surging crude prices and increased production is set to result in the oil export earnings of Saudi Arabia increasing by almost $39 billion, surpassing $242 billion this year and widening the current account surplus even further while boosting the Kingdom’s official assets.
A leading investment firm in Saudi Arabia stated that the average crude price for the Kingdom’s exports is expected to reach $91.70 in 2011, a huge jump from the $77.70 seen in 2010. Output of crude is also expected to increase from 8.2 million bpd last year to 8.8 million bpd this year.
These increases will boost the Kingdom’s crude export revenue to a level that is second highest only to the $281 billion reported in 2008 when the price of oil hit an average of $95 per barrel. Jadwa Investments of Riyadh released this information in a recent study.
The study forecasts that Saudi’s income will return to last year’s levels in 2012, dropping to $203 billion due to falling prices and a decrease in the Kingdom’s oil production, which should drop to about 8.7 million bpd.
Jadwa stated that the earnings boost would increase Saudi’s current account surplus even though an increase in imports is also expected. The study also said that the surplus may fall in 2012 as higher levels of imports and rising expatriate remittances are seen.
Rising oil revenues are set to create a significantly larger current account surplus than was expected previously for this year. With revenues from oil exports set to hit $243 billion in 2011, the second highest level seen, the trade surplus will increase to $181 billion while the current account level will reach $93 billion, according to the study.
It also indicated that non oil exports are also going up due to the increasing price of petrochemicals. The study added that these wider trade balance figures have taken into account that more imports of machinery, consumer goods and raw materials for construction are also likely.
The Kingdom is planning a massive hike in the housing available over the coming years and according to Jadwa, this will negatively impact the current account.
As well as needing to bring in the required equipment, materials and services related to these developments, more and more expat workers will be needed for the labour and a majority of their income is likely to be remitted. Those conditions will result in a rapidly falling current account surplus for next year.
Outside of the surplus, increasing oil export earnings would also hike up the official financial reserves in Saudi Arabia. These figures have grown rapidly in the last few years as a result of rising crude prices and the Kingdom’s oil supply.
Most of the assets are based in the West and under the control of SAMA (or the Saudi Arabian Monetary Agency). These rose to a record high level of about $520 billion at the close of last year and are forecasted to climb to almost $588 billion by the end of 2011 on the way to an even higher level of $623 billion, according to Jadwa.
The study indicated that improving conditions in Saudi Arabia’s financial state of affairs would mean that the Kingdom could reduce the public debt from the 2010 figure of SR167 billion to SR160 billion by the close of 2011. The debt is forecasted to stay at the level for the end of next year.
These debt reductions will combine with expansion in the economy to decrease the debt to GDP ratio in Saudi from last year’s 10.2 percent to only 8.4 percent this year. The debt levels surpassed the GDP back in late 1999. This ratio fell to 65 percent near the end of 2004 and has fallen steadily in the years since then due to large fiscal surpluses.
The biggest fiscal surplus recorded by Saudi Arabia came in 2008, when the almost SR 581 billion (or $155 billion) was reported due to total revenue hitting SR 1,101 million (or $293 billion). This revenue is due to the highest level of current prices recorded in the time since Saudi Arabia began exporting oil over 79 years ago.Paul Holdsworth, Staff Writer, Gulf Jobs Market News