Saudi Arabia to resist other OPEC members’ pressure to cut oil output
Baku, Azerbaijan, Nov. 18
By Aygun Badalova - Trend:
Saudi Arabia will likely resist pressure from other OPEC members to cut oil output in an effort to arrest the recent slide in prices, analysts of the British economic research and consulting company Capital Economics believe.
"After all, the Saudi economy is in a stronger position to withstand a period of lower oil prices than many other members of the cartel. And, over the longer-term, the authorities may see a period of lower oil prices as working in their favour," analysts said in a report, obtained by Trend.
Analysts also said that the fall in oil prices will have compounded existing economic problems in Venezuela and Iran. However, given that these countries are probably unwilling to cut output themselves, they are likely to place the onus on Saudi Arabia, analysts believe.
Saudi Arabia is in a position where it can comfortably absorb the hit to its income from lower oil prices, analysts said.
"Admittedly, at current prices, the budget may already be in deficit. But financing this shouldn't prove at all troubling. The authorities can issue debt or draw down savings to fill the gap," analysts said.
Moreover, according to the analysts, oil prices would have to fall much further before the current account slipped and the sustainability of the currency pegs was called into question.
"It's worth noting too that Saudi Arabia's marginal cost of oilproduction is low, at around $10-15 per barrel. In short, the Saudi authorities have plenty of breathing space," analysts said.
Saudi Arabia is the largest oil producer within OPEC. The country's oil production amounted to 9.8 million barrels per day in the third quarter of 2014, according to the US JP Morgan bank. Actual OPEC production in the third quarter of this year was 36.5 million barrels per day.
OPEC member states will hold a meeting on November 27, where they will make a decision on production quotas.
The current oil prices stand below $80 per barrel.