Oil Price Not Done Crashing, Saudi Arabia Could Be Broke In Five Years: Reports

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  • Saudi Arabia projected to run massive deficits
  • Storage getting close to capacity, Goldman Sachs warns
  • Canadian oil producers, Alberta budget in the red

The bad news keeps piling on for the oil industry and the countries that rely on it.

Despite oil prices having already fallen 60 per cent from their highs last year, investment bank Goldman Sachs says they could suffer another major decline as storage space for refined fuel gets closer to full capacity.

Meanwhile, a report from the IMF warns that Middle Eastern oil-exporting countries, particularly Saudi Arabia, could go broke within five years if oil prices stay at current low levels.

Storage of refined fuels in the U.S. and Europe is “nearing historically high levels,” Goldman Sachs said in a report issued Monday and obtained by Reuters.

“This raises the spectre of 1998 (and) 2009 when distillate storage hit capacity, pushing … crude oil prices sharply lower.”

The bank has been bearish on oil’s prospects for months, warning in September that it could take oil prices as low as US$20 a barrel to clear the global glut of oil.

The report was one reason oil prices hit their lowest level in weeks on Tuesday, with West Texas Intermediate, the North American benchmark for oil prices, trading down 2.34 per cent, at US$42.94, as of mid-day Tuesday.

With many analysts now predicting a prolonged period of low oil prices ahead, attention is turning to the many countries that rely primarily on oil for their wealth. The IMF warned in a report issued last week that Middle Eastern oil-exporting countries, particularly Saudi Arabia, risk bankruptcy if oil prices remain low and government policies don’t change.

With the exception of Kuwait, Qatar and the United Arab Emirates, Middle Eastern oil exporters “would run out of buffers in less than five years because of large fiscal deficits,” the IMF said.

It projects Saudi Arabia will run a deficit equal to 21.6 per cent of its GDP this year, and 19.4 per cent in 2016 — enormous shortfalls, by any measure.

By comparison, Alberta’s projected $6.5-billion deficit amounts to 1.8 per cent of GDP, in part a reflection of the fact that Canada’s economy and government finances aren’t nearly as reliant on oil as Saudi Arabia.

Nevertheless, with the provincial NDP set to to table a budget this week that includes new infrastructure spending, ratings agency DBRS warned Alberta’s AAA credit rating could be at risk if the province’s debt keeps growing.

Analysts expect Canada’s oil patch to turn in a “fairly awful” quarter as earnings begin to roll in this week, and analysts are turning their attention to how oil companies will cope, whether by hanging a “for sale” sign on themselves or their assets, or through other means. The Canadian Association of Petroleum Producers says 36,000 jobs have already disappeared in the oil and gas industry this year, mostly in Alberta.

All the same, with prohibitively high shutdown costs in the oilsands, oil production hasn’t shrunk in Canada like it has in the U.S. shale oil play. According to Desjardins, Canada actually added eight oil rigs last week.

“That said, the outlook for the crucial winter drilling season remains bleak, with soft commodity prices and looming uncertainty from the ongoing Alberta royalty review likely to crimp producer spending plans,” Desjardins co-head of energy research Justin Bouchard said in a client note.

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