The outlook for the oil price next year is under renewed pressure following strong signals from Saudi Arabia that the world’s largest crude exporter is preparing for a long period of low returns and amid expectations that Iran will further flood the global market when sanctions are lifted. Analysts said plans announced by Saudi Arabia late on Monday to reduce a budget deficit of nearly $98bn through spending cuts, reforms to energy subsidies and a privatisation drive were a sign that Riyadh intends to stick with its policy of not cutting output. It also shows that Opec’s de facto leader is prepared to accept cheap prices for its crude as it seeks to put pressure on higher cost rivals such as US shale producers and waits for the market to rebalance.
“They are responding to the low-price regime, the duration of which has surprised,” said Ole Hansen at Saxo Bank. “Having gone this far with their pump and dump strategy they sense that victory in the shape of non-Opec production cuts is just around the corner. Offsetting this in the near term will be the extra supply from Iran once sanctions are lifted.” Another signal that Saudi Arabia is prepared to sustain its strategy of keeping the pumps open came from the chairman of Saudi Aramco, the state-controlled oil company, after the budget was announced on Monday. “We see the market balancing sometime in 2016, we see demand ultimately exceeding supply and soaking up a lot of the excess inventory and prices in due course will respond regardless of when and by how much,” said Khalid al-Falih.