Saudi Arabia’s Breakeven Point

Don Minter

Oil BarrelsThere are a lot of numbers thrown around concerning the Kingdom of Saudi Arabia (KSA) and their present “market-share” production strategy. Well, here’s an article with even more numbers.

It was reported that KSA had a budget deficit of $98 Billion dollars in 2015. This deficit was supposedly covered by their reserve funds, estimated to have been around $500 to $600 Billion at the start of 2015. We can reasonably assume that KSA can therefore maintain this deficit spending level for at least another four to six years without running out of reserve funds.

We will assume that 100% of KSA income comes from oil, and oil alone. This isn’t exactly correct, but it makes the analysis easier to understand for the purposes of this article. KSA averaged about 10 Million Barrels Per day in 2015, as seen by this chart:

KSA Oil Production 2015

You can see from this chart that WTI oil prices averaged about $45 per barrel for the year 2015 (ignore everything before Jan 2015). Yes, I know KSA doesn’t sell WTI, but this is just an approximation for basic analysis purposes.

Oil prices for the last 18 months

So, what can we determine from the charts and figures above? Well, some simple calculator math tells us that $98 Billion (annual deficit) divided by 10 Million (barrels produced per day), and further divided by 365 (days) gives us the amount of $26.85 of deficit spending per barrel of oil produced. Using the $45 per barrel that WTI averaged for 2015 and adding this deficit amount, we can empirically state that KSA needs to sell oil at about $72 per barrel to maintain their 2015 spending levels without impacting their reserve funds.

I realize this is a simplistic analysis, and further realize that KSA consumes somewhere in the neighborhood of 3 million barrels per day (which only makes the above figures worse for KSA).

Even taking everything into account, the fact remains that KSA still maintains several years of reserve funds. If they are capable of reducing their welfare spending, they can improve on the figure of $72 that I found. If they can diversify their portfolio to include any other revenue source of size, they can further decrease their deficit spending; however, the point cannot be avoided that they need to do something other than “produce, produce, produce” as long as oil remains below $60, or they are going to hit their spending limit in just a few years.

Feature photo of barrels used courtesy of dan at