Saudi Arabia is pushing oil price toward $80 a barrel.

The oil market woke up from January’s sleeping and came back to growth on the back of sharp oil production cut by Saudi Arabia, the budget of which depends on oil revenues even more than in Russia. The budget planning requires oil prices above $80 per barrel in order to help the King family of Saudis to balance the budget.

Brent oil price started rising in London ICE Exchange, rewriting maximum levels since November after an uncertain period of choppy hovering around levels between $59 and $63 per barrel. Four days of growth in a row lifted Brent oil price by 6.6% and Friday’s price action was seen at the level of $65.1 per barrel.

American type WTI lags the European oil price on the back of growing shale production in the United States, which has reached a peak of 12 million barrels per day recently. That impressive result made the US becoming the largest county with such a high oil output. WTI Crude contracts added only 5.2% to the value from the beginning of the week, staying below the last week’s high of $54.87 per barrel.

Although the global economy is slowing down, PMI business activity indices are falling four months in a row across the globe, the German economy appeared on a border of potential recession (the Gross Domestic Product declined by 0.3% in the third quarter of 2018, and was flat in the fourth quarter), the U.S.-China trade deal is losing the chances with every week - the oil market is making good cheer on the back of Saudi Arabia’s unprecedented doping dose.

According to OPEC data, Saudi Aramco had cut the oil production in January by 350 thousand barrels per day. In the previous month, the oil output cut reached even higher levels of 495 thousand barrels per day. Taking in the count falling output in Venezuela, anti-Iranian sanctions by the US, and the closest Saudi Arabia ally’s efforts - the UAE - the total volume of OPEC countries’ shortage of oil supply reached an incredible level of 1.5 million barrels per day. The OPEC oil production volume (30,806 million barrels per day) was still overshadowing the global demand in the first half of February, which was estimated at 30.5 million barrels.

As long as Saudi Arabia continues cutting the production volume, disbalance is going to be eliminated shortly. According to the Kingdom’s energy minister, another 300 thousand barrels per day will be decreased in daily production. The export level has been cut from 8.2 million barrels per day in November to 6.9 million barrels recently. Although the OPEC market share keeps falling to 30% in the global supply from 33% previously, Saudi’s choice is not so wide.

The main problem is that the King’s family included record-high spending in the 2019 budget (295 billion dollars) including subsidies for citizens and economic restructuring plan with an emphasis on going out from the oil dependence. That plan might lead to more expenses at the level of 425 billion dollars in the next 12 years.

The national currency exchange rate is fixed in Saudi Arabia and is being held by the central bank at the level of 3.75 riyals for one US dollar, the King’s family need oil prices at the level of $80/85 in order to balance the budget, according to IMF economists. OPEC sources also confirmed that Saudi Arabie will keep pushing the market toward the needed price levels in 2019, including steps ahead to Russia in order to reach the deal. So far, the OPEC+ deal is working till July 2019, however, the markets’ reality shows that that agreement is going to be prolonged without any deadlines due to the growing shale production and exports by the United States, covering the most part of global demand and overshadowing the role of the Middle East.
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