Saudi financial reserves keep pressure off the currency peg

Updated 23 August 2017
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Saudi financial reserves keep pressure off the currency peg

LONDON: Saudi Arabia is under no pressure to ditch the currency peg to the dollar thanks to its currency reserves.
That is according to a report by Indosuez Wealth Management, the global wealth management arm of France’s Credit Agricole Group.
The report looked at the current account balances for the Gulf region in the wake of the 2014-2015 oil price collapse.
Gulf countries rely heavily on oil sales. The oil price collapsed from $108 per barrel in June 2014 to as low as $29 in January 2016. It is now trading at $48 per barrel. But while that has impacted the financial strength of several countries, it does not represent a threat to the peg, said the report.
“Saudi Arabia is able to rely on its reserves that remain considerable and amount to more than two years’ worth of imports,” said Dr. Paul Wetterwald, chief economist at Indosuez Wealth Management business line.
“This should allow the authorities to withstand any pressure on the peg.”
Saudi Arabia’s current account went from a surplus to a deficit of 8.3 percent in 2015. More recently the country avoided running a twin deficit in the first quarter of this year as the Ministry of Finance disclosed a budget deficit of 4 percent of gross domestic product (GDP) annualized, and a rebound in the oil price helped to get the current account back in surplus.
Exports gained and imports declined due to weak domestic demand, resulting in a $6 billion surplus mainly due to oil-related exports receipts.
Despite this, the capital account displayed large outflows reflecting possibly reallocation of sovereign wealth. Reserves continued to decline over the January-May 2017 period and stand now at $499 billion.


OPEC oil ministers gather to discuss production increase

Updated 19 June 2018
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OPEC oil ministers gather to discuss production increase

  • Analysts expect the group to discuss an increase in production of about 1 million barrels a day
  • The officials were arriving in Vienna ahead of the official meeting Friday

VIENNA: The oil ministers of the OPEC cartel were gathering Tuesday to discuss this week whether to increase production of crude and help limit a rise in global energy prices.
The officials were arriving in Vienna ahead of the official meeting Friday, when they will also confer with Russia, a non-OPEC country that since late 2016 has cooperated with the cartel to limit production.
Analysts expect the group to discuss an increase in production of about 1 million barrels a day, ending the output cut agreed on in 2016.
The cut has since then pushed up the price of crude oil by about 50 percent. The US benchmark in May hit its highest level in three and half years, at $72.35 a barrel.
Upon arriving, the energy minister of the United Arab Emirates, Suhail Al Mazrouei, said: “It’s going to be hopefully a good meeting. We look forward to having this gathering with OPEC and non-OPEC.”
The 14 countries in the Organization of the Petroleum Exporting Countries make more money with higher prices, but are mindful of the fact that more expensive crude can encourage a shift to renewable resources and hurt demand.
“Consumers as well as businesses will be hoping that this week’s OPEC meeting succeeds in keeping a lid on prices, and in so doing calling a halt to a period which has seen a steady rise in fuel costs,” said Michael Hewson, chief market analyst at CMC Markets UK
The rise in the cost of oil has been a key factor in driving up consumer price inflation in major economies like the US and Europe in recent months.
Already US President Donald Trump has called on OPEC to cut production, tweeting in April and again this month that “OPEC is at it again” by allowing oil prices to rise.
Within OPEC, an increase in output will not affect all countries equally. While Saudi Arabia, the cartel’s biggest producer, is seen to be open to a rise in production, other countries cannot afford to do so. Those include Iran and Venezuela, whose industries are stymied either by international sanctions or domestic turmoil. Iran is a fierce regional rival to Saudi Arabia, meaning the OPEC deal could also influence the geopolitics in the Middle East.