Saudi Arabia is expected to rake in $157 billion from oil exports this year, up 48 per cent on a strong 2004, with the trend expected to continue because of strong demand for crude oil, according to a mid-year report by Samba, formerly the Saudi-American Bank.
"The Saudi economy is booming," the report said. "This year will be the best year in the Kingdom's economic history..."
The report, by Samba's chief economist Brad Bourland, considered the top authority on the Saudi economy, said Saudi Arabia's GDP was forecast to register a record 26 per cent growth in nominal terms, while inflation would be insignificant.
"Oil revenues, the government budget surplus and the current account surplus will all register all-time highs because of exceptional oil prices and high oil production levels," the report added, predicting that this was the beginning of an upswing that would continue for some time because of strong demand for crude oil, the country's main export revenue earner.
"The high oil price is not crisis-driven but driven by strong underlying demand growth and tight supply in the global oil market. These conditions are likely to continue for years and to be of specific benefit to Saudi Arabia," said the report.
The bank report said Saudi Arabia, the world's biggest oil producer and exporter, earned $106 billion in oil export revenue in 2004, a record and well above the average of $69 billion achieved in the previous five years.
"For 2005, we forecast that the Kingdom will earn $157 billion from oil exports, assuming an average price of $45 per barrel for Saudi oil and average production of the year of 9.6 million barrels per day (bpd)," said Samba.
The report said oil market internal fundamentals in late June suggest that demand may in fact be stronger than forecast mid-year, particularly in the US.
It noted that Saudi Arabia had earlier in the year sold its Arab Heavy, the least desirable of its crude grades, at historically large discounts in the North American market.
"This discount has been closing in recent months, suggesting that demand even for Arab Heavy is picking up," it said.
Samba also noted that the movement of price differentials pointed out to
the inflexibility of the refining system in consuming nations.
It said that the steep discount of the heavier grades meant that the average discount of Saudi crude to West Texas Intermediate had widened to $6.60 per barrel so far in 2005 from a normal average of $3 per barrel below WTI.
"The emergence of sharper differentials for different grades of crude oil lends credence, in our view, to the notion that part of the problem in the current tight market is inflexibility of the oil refining system to refine heavier crude grades, especially in the North American and European markets."
Saudi Arabian Foreign Minister Prince Saudi Al Faisal said that Saudi Arabia was concerned about the rapid rise in oil prices, which he blamed on the lack of sufficient refining capacity in consuming nations.
Samba also dismissed speculation that Saudi Arabia did not have sufficient capacity to increase its production capacity beyond a current 11 million bpd but said it saw problems ahead if the Kingdom raises capacity beyond 15 million bpd, which the Kingdom has said is on the cards if the investment in new capacity is warranted by demand.
