Saudi Arabia’s Finance Ministry is budgeting for oil prices to be around $50 a barrel for the next three years, according to a Goldman Sachs Group Inc. analysis of the kingdom’s fiscal plans. “Using our own estimates for the breakdown of government revenues, we calculate that the numbers presented in the budget statement are based on an average oil price of around $50 a barrel between 2020 and 2023,” said Farouk Soussa, a London-based analyst at Goldman, referring to a pre-budget statement from Sept. 30.
Brent crude fell 6.3% to $39.27 a barrel last week as more countries tightened restrictions to counter the coronavirus pandemic and U.S. President Donald Trump got infected, causing traders to fret about the outlook for energy demand.
Oil Realism
Saudi 2021 budget assumes higher oil price average than analyst median
Source: Bloomberg and Goldman Sachs estimates
Note: Goldman Sachs $50/bbl estimate is an average between 2020-2023.
While oil at $50 would represent a 25% rise from current prices, it would still be far below the pre-pandemic level of around $65 and less than Saudi Arabia needs to balance its budget.
Goldman’s calculations are roughly in line with those of Cairo-based investment bank EFG Hermes, which said Saudi Arabia is basing next year’s budget on an oil price of $50 to $55. Goldman is itself more bullish, forecasting that Brent will climb to $65 by the end of 2021. Saudi officials expect the country’s fiscal deficit to narrow to 5.1% of gross domestic product in 2021 from 12% this year as they cut spending, according to last week’s statement.
The kingdom tends to take a relatively conservative view of crude prices in drawing up its budget and doesn’t divulge its assumptions, leaving analysts to estimate them from other projections. The Finance Ministry didn’t immediately respond to a request for comment on Sunday.