At the end of 2014, the price of crude oil had slumped to a shade over $60, almost half of its March 2013 level. As of yesterday, the price of Brent crude tumbled further to below the $37 mark.
The international community appears to have come to an agreement with Iran over its nuclear activities which will mean a gradual easing of sanctions and will see Iran return (officially) to the international oil markets. Iran is keen to earn foreign currency and boost oil exports, hoping to increase output by a further 500000 barrels per day. This additional capacity coming on-stream will do nothing to shore up the oil price which is at an 11 year low due to oversupply and weak demand.
The Kingdom of Saudi Arabia owes its riches to oil. It holds 16% of the world’s established oil reserves and is the largest exporting nation, so the collapsing oil price is bound to have an effect there. Oil and gas produce 80% of the nation’s budget revenue, accounting for 90% of exports and 45% of Saudi Arabia’s GDP. This year’s oil revenues fell by 23% which indicates that the Kingdom increased production to offset the falling price.
The Kingdom has posted a deficit of $98 billion for the current year. The price of petroleum products is heavily subsidised for Saudi citizens – they pay just $0.23 per litre of petrol compared to $0.60 in the US and a whopping $1.53 in the UK (in Venezuela, it costs just 2 US cents per litre).
Saudi authorities have suggested that petroleum product subsidies may be cut, possibly increasing petrol prices by as much as 50% with diesel, electricity and water prices set to increase as well. With public debt at just 1.6% of GDP and very considerable financial reserves, it is likely that the Kingdom is very well placed to withstand low crude prices better than most. It is suspected that many smaller oil companies and concerns that extract oil at high costs may go to the wall if prices remain low over the longer term.