WTI crude has dropped back to a $43 handle this morning – erasing the Saudi-Russia statement hype ramp – after China inventories and disappointing 'freeze' talk but for now the plunge has stalled as Saudi Arabia is set to review thousands of contracts aiming to cancel up to $20 billion of projects. This suggests hope for higher oil prices (improved revenues) are fading.
Crude resumed its fall
As Bloomberg reports, Saudi Arabia is intensifying efforts to shrink the highest budget deficit among the world’s biggest 20 economies, aiming to cancel more than $20 billion of projects and slash ministry budgets by a quarter, people familiar with the matter said.
The government is reviewing thousands of projects valued at about 260 billion riyals ($69 billion) and may cancel a third of them, three people said, asking not to be identified as the discussions are private. The measures would impact the budget for several years, two of the people said.
A separate plan includes merging some government ministries and eliminating others, two people said, also speaking on condition of anonymity.
The world’s biggest oil exporter has taken unprecedented steps to rein in a budget shortfall that ballooned to 16 percent of gross domestic product last year, curtailing fuel and utility subsidies as well as cutting billions of dollars in spending. The International Monetary Fund expects the shortfall to drop to below 10 percent of GDP in 2017.
The Finance Ministry declined to comment, while officials at the Ministry of Economy and Planning weren’t available for comment when contacted by Bloomberg. Several senior government officials are accompanying Deputy Crown Prince Mohammed bin Salman on an Asian tour.
Notably, expectation for a Riyal devaluation/depegging appear to have faded dramatically (a positive response to these budget decisions?)
Charts: Bloomberg
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