MARKET BRIEFING – LONDON OPEN 07.09.2015
The finance minister of Saudi Arabia has said that the Government will delay certain state projects. This move has been taken with the aim to cut in State spending.
However, Finance Minister Ibrahim al-Assaf said that Saudi Arabian finances are in good health and that the low price of oil was not a problem and can be managed.
The oil-rich Gulf State is the biggest exporter of crude has increased production in a bid to maintain its market share in the face of increased but more expensive shale production that originates from the United States.
The increase in production has driven down the price of Oil from around US$112.00 per barrel in August 2013 to just under US$46.00 per barrel at the start of this week.
Mr. al-Assaf tried to reinforce the Saud position by telling CNBC Arabia in an interview that
“We have built reserves, cut public debt to near-zero levels and we are now working on cutting unnecessary expenses while focusing on main development projects and on building human resources in the kingdom,”
The Saudi Arabian government had built up some US$ 600 billion in reserves which were accumulated during the good times when the oil price was much higher. However according to the International Monetary Fund Saudi Arabia needs to sell oil at US$ 106.00 to balance is budget during the period 2015.
Although the substantial cash pile that Saudi Arabia has accumulated will enable it to continue to fund a large public sector workforce and crucial infrastructure projects there will be a growing concern within the Government that such high levels of production will lead to a squandering of this valuable cash asset.
Saudi Arabia without question is the giant within the globes crude producers but can it really carry on and fight the US shale sector without damaging its own economy in the long run.
Furthermore, the United States shale community will and has responded to the prevailing market conditions. Due to the historically low crude prices the US shale industry has found ways to become leaner and more efficient. This process will continue and this, in the long run, will eventually force the Saudi government to reassess its current policy.
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AUDUSD
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OIL
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Daily control level: 43.50
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