Speaking on the same day that Saudi Arabia unveiled its 2016 budget, Saudi Aramco Chairman Khalid al-Falih said that oil markets will likely balance next year as non-OPEC supply, particularly from North America, continues to fall.
“Supply has plateaued in North America and [is] declining by significant amounts. We expect that to continue and perhaps accelerate in 2016…We see the market balancing some time in 2016. We see demand ultimately exceeding supply…Prices in due course will respond,” the Wall Street Journal reported him as saying in Riyadh.
Saudi Arabia announced plans to steeply cut spending in 2016, and also significantly increased domestic fuel prices, as the global top oil exporter seeks to cope with low oil prices. Domestic petrol prices were raised Monday by more than 50% for some products per the Royal Kingdom’s strategy to cut a series of subsidies after announcing a record budget deficit, ABC Online reported. Aramco tweeted that it was closing petrol stations immediately until midnight on Monday (local time), whereupon the state company will resume sales at the new prices. Prices will also increase for other fuels- including diesel, natural gas, and kerosene- as well as for heavily subsidized electricity and water. Al-Falih said Monday that Saudi does not plan a further increase in fuel prices soon, the WSJ reported.
He said the government did not base next year’s budget on a single price for oil, but instead a set of different pricing scenarios. “We realize prices are variable, and we have the capability to fund our budget under different pricing scenarios,” Marketwatch quoted him as saying.
“Saudi Arabia is more robust financially than any other oil-producing country and we have the flexibility to deal with different scenarios,” al-Falih said. Reuters quoted him as saying that Saudi has the ability “to wait the market out until this balancing takes place. We have the ability to finance.”
This comment complements Saudi Arabia’s market share defense strategy, which has grounded OPEC’s decision making over the last year-and-a-half. “Why should we cut when other, less efficient (from the Saudi perspective) producers won’t cut?”, has largely been the rhetorical mantra under girding Saudi’s strategy.
“Our production policy has been clear, we will meet out customers’ demand and will not leave our customers short of energy,” Reuters reported al-Falih as saying.
The WSJ quoted him as adding, “We will continue to invest. We will invest in gas. Invest in refining, petrochemicals…Projects will continue. We will double our production of gas in the next 15 years or so.”