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Thursday, October 30, 2008

Saudis to draw the line at $50/barrel

ABU DHABI — Saudi Arabia plans to significantly reduce crude oil production to prevent prices from dropping below $50 per barrel.

Industry sources said Riyad has budgeted its military procurement and energy infrastructure program on expectation that the price of oil would remain over $50 through 2010. The sources said the Gulf Arab kingdom would encounter a deficit should prices drop below $50.

"If it goes below that level we would start seeing a fiscal account deficit," International Monetary Fund director Mohsin Khan said.

Since July 2008, the price of crude oil dropped from a high of $147 to below $70 per barrel. Industry sources said the global credit crisis would plunge prices at least another $20 over the next two months, Middle East Newsline reported.

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But the sources said Saudi Arabia, 90 percent of whose exports stem from oil, has sought to maintain the price of oil at $80 per barrel. They said the kingdom has been obligated for more than $400 billion in defense, energy, security and infrastructure projects.

"Saudi Arabia's break-even price is the highest among the Gulf Cooperation Council Countries because they are spending on a lot of projects right now, and oil money is used to fund these projects," Khan, director of IMF's Middle East and Central Asia desk, told Dow Jones Newswires.


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