At the start of the week, news from two of OPEC’s leading Gulf states shed light on the current impact of, and reaction to, low oil prices.
Data show that Saudi Arabia has withdrawn between $50-$70 billion over the past six months from global asset managers, and that its foreign reserves have dropped by almost $73 billion since oil prices began falling last year. Meanwhile, Kuwait’s oil chief has rejected Venezuela’s plea for a meeting between OPEC members and non-members to address the oil price rout.
To be sure, OPEC’s Gulf states, which have steered the 12-member group’s strategy over the past year, remain committed to a market share defense strategy. But at the same time, the impact of low oil prices on the economies of these nations is becoming more acute.
The Impact Of Low Prices On Saudi’s Economy
According to financial services market intelligence company Insight Discovery, Saudi Arabia has withdrawn between $50 billion and $70 billion over the past six months from global asset managers to repatriate cash to help Saudi Arabia sustain its economy, reduce its widening deficit, and finance the ongoing military campaign in Yemen.
According to central bank data, cited by the Financial Times, the Saudi Arabian Monetary Authority’s (SAMA) reserves held in foreign securities have dropped about 10% from a August 2014 peak of $737 billion, to $661 billion in July. The Saudi government is accelerating bond sales to help maintain spending.
With 80% of government revenue represented by oil, Saudi’s budget deficit could expand to 20% of GDP in 2015, according to the IMF. SAMA intends to raise between 90 billion riyals ($24bn) and 100 billion riyals in bonds before the end of 2015 as it attempts to diversify its $752 billion economy, sources told Bloomberg last month.
Kuwait Says ‘No’ To Venezuela
Also Monday, Kuwait’s Oil Minister Ali al-Omair rejected Venezuela’s call for a meeting between OPEC and non-member producers to address the fall in oil prices. In remarks reported by the official Kuwait News Agency, he said that because non-OPEC members have no obligation to curtail their output, an OPEC meeting with them would be futile.
Kuwait’s Oil Minister Ali al-Omair
Al-Omair said that “even after OPEC states commit to decreasing production, other states increase their production. This makes us lose market share and opportunities that are hard to compensate.”
Over the past year, Venezuela’s President Nicholas Maduro has repeatedly urged OPEC to take action to arrest the slide of the oil price. He has engaged on several “oil diplomacy” tours during which he beseeched both the country’s OPEC peers and non-members to take action.
Most recently, Maduro visited Russian President Vladimir Putin, the latter saying that no specific joint action would be taken to curtail production.