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.
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.