Saudi Arabia Seen Needing to Boost Oil Exports as Spending Rises

Feb 19, 2014 11:06 am ET

Feb. 19 (Bloomberg) -- Saudi Arabia, the world’s biggest crude exporter, probably needs to boost shipments this year to keep pace with record government spending, according to a former adviser to the nation’s finance ministry.

The country needs to at least match the 7.54 million barrels a day it shipped last year and will probably need to sell more, John Sfakianakis, chief investment strategist at Riyadh-based MASIC, an investment company, said by phone today. He previously worked as chief economist for two Saudi Arabian banks and worked in the ministry of finance as a full-time adviser between 2011 and 2013.

Extra shipments could be negative for oil prices because of expanding supplies elsewhere. Iran, Iraq and Libya, among countries with the world’s biggest reserves, will pump more crude this year, according to the most accurate forecasters surveyed by Bloomberg in December. Saudi Arabia is known as a swing producer as it alters supply depending on demand.

“If spending is still increasing from three years ago, and oil prices are not on an upward trend this year, what will you do?” Sfakianakis said. “You will need to export more.”

Saudi Arabia’s spending has been higher than the government anticipated every year since at least 2008, according to state- owned National Commercial Bank. Its expenditure last year was 925 billion riyals ($246.7 billion), compared with 820 billion riyals that it intended, NCB data show.

Crude oil prices will decline to about $100 a barrel for Arab Light this year from $106.4 in 2013, NCB estimates. The grade makes up about half the nation’s exports and the slide in price will reduce oil revenue to $283 billion, the lowest since 2010, the bank predicts.

Saudi Arabia plans to spend everything it earns this year, the Ministry of Finance said in December. Revenue is expected to be 855 billion riyals this year, it said.

The Kingdom exported crude at about $104 last year and prices may drop to $100 in 2014, Riyadh-based Jadwa Investment Co. said on Dec. 24. The country will need a break-even oil price at $85 this year, Jadwa said.

--With assistance from Grant Smith in London. Editors: Claudia Carpenter, Alaric Nightingale