Saudi budget: break even oil price will increase to USD 88/bbl in 2011, 29% Y-o-Y increase

MARCH 31, 2011, 8:01 PM ET

Saudi Arabia, due to higher government spending this year, will need its oil to sell for $88 a barrel in 2011 for its government to break even–up from $68 last year, according to Institution of International Finance

Only a decade ago, Saudi Arabia was able to balance its budget with oil prices averaging $20-$25 a barrel.

The kingdom, in response to the unrest spreading throughout the Middle East and North Africa, is boosting government spending to provide new social benefits for its people. The support for housing units, unemployment benefits and wage hikes for public workers (among a long list of measures) will contribute to a 31% increase in government spending in 2011 from a year earlier.

Saudi Arabia, the world’s largest oil producer, gets more than four-fifths of its government revenue from the petroleum sector. Under an average price for Brent oil of $110 per barrel, equal to about $108 a barrel for Saudi crude, the Saudi government would still maintain a surplus of 6.7% in 2011.

Saudi output accounts for about 10% of global oil supply. With most of the world’s spare production capacity, it influences the price of oil more than any other producer — and has taken on greater importance amid unrest in Libya, Egypt and other oil-producing countries.

What is the fear?

The oil market is growing increasingly worried about Riyadh’s fiscal needs as it fears that they could force Saudi Arabia to pursue oil policies similar to those of Venezuela and Iran, traditionally the price hawks at the OPEC oil cartel