By Rania El Gamal, Davide Barbuscia and Marwa Rashad

DUBAI/RIYADH, Oct 7 (Reuters)The slump in demand for crude during the coronavirus pandemic has forced oil companies to contemplate the possibility that the fossil fuel market has peaked and the time for a global energy transition has come.

But Saudi Aramco plans to boost its production capacity so it can pump as much of the kingdom’s vast oil reserves when demand picks up – before a shift to cleaner energy makes crude all but worthless, industry sources and analysts told Reuters.

With almost 20% of the world’s proven reserves and production costs of just $4 a barrel, Aramco believes it can undercut competitors and carry on making money even when lower oil prices make it unprofitable for rivals, the sources said.

Riyadh now plans to follow through on its apparent threat in March during an oil price war with Russia to raise its capacity to 13 million barrels a day (bpd) from 12 million bpd, officials and sources have said.

Aramco’s approach is in stark contrast to Western rivals such as BP BP.L and Shell RDSa.L which plan to curb spending on oil production so they can invest in renewable and green energy as they prepare for a low-carbon world.

With a renewed focus on oil, the state-run oil giant is also revising ambitious downstream expansion plans and now aims to grab assets in established projects in key markets such as India and China, rather than building expensive mega plants from scratch, the sources said.

“We expect oil demand growth to continue in the long term, driven by rising populations and economic growth. Fuels and petrochemicals will support demand growth … speculation about an imminent peak in oil demand is simply not consistent with the realities of oil

(Bloomberg) — Saudi Arabia’s Finance Ministry is budgeting for oil prices to be around $50 a barrel for the next three years, according to a Goldman Sachs Group Inc. analysis of the kingdom’s fiscal plans.

“Using our own estimates for the breakdown of government revenues, we calculate that the numbers presented in the budget statement are based on an average oil price of around $50 a barrel between 2020 and 2023,” said Farouk Soussa, a London-based analyst at Goldman, referring to a pre-budget statement from Sept. 30.

Brent crude fell 6.3% to $39.27 a barrel last week as more countries tightened restrictions to counter the coronavirus pandemic and U.S. President Donald Trump got infected, causing traders to fret about the outlook for energy demand.



chart: Oil Realism


© Bloomberg
Oil Realism

While oil at $50 would represent a 25% rise from current prices, it would still be far below the pre-pandemic level of around $65 and less than Saudi Arabia needs to balance its budget.

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Goldman’s calculations are roughly in line with those of Cairo-based investment bank EFG Hermes, which said Saudi Arabia is basing next year’s budget on an oil price of $50 to $55. Goldman is itself more bullish, forecasting that Brent will climb to $65 by the end of 2021.

Saudi officials expect the country’s fiscal deficit to narrow to 5.1% of gross domestic product in 2021 from 12% this year as they cut spending, according to last week’s statement.

The kingdom tends to take a relatively conservative view of crude prices in drawing up its budget and doesn’t divulge its assumptions, leaving analysts to estimate them from other projections. The Finance Ministry didn’t immediately respond to a request for comment on Sunday.

Saudi Arabia would need oil to trade at $66 to balance its budget in 2021,

By Marwa Rashad and Davide Barbuscia

RIYADH/DUBAI (Reuters) – Saudi Arabia plans to cut spending by 7.5% in next year’s budget to 990 billion riyals ($263.94 billion) but expects the economy to return to growth as its management of the coronavirus crisis improves, a preliminary budget statement showed.

The projected retrenchment in spending comes as the world’s largest oil exporter faces an economic contraction caused by the pandemic, a drop in oil prices, and crude production cuts, and follows a significant drop in revenue this year.

Riyadh expects a 12% budget deficit for 2020, falling to 5.1% next year, the document published on Wednesday showed.

Spending is expected to decrease to 955 billion riyals and 941 billion riyals in 2022 and 2023, respectively, with the deficit shrinking to 3% and 0.4% in those two years. Spending this year is estimated at 1.07 trillion riyals.

“The fact that spending is expected to fall further over the next few years suggests that, despite policymakers’ recent suggestions that they are looking at all measures to boost the economic recovery, this is unlikely to involve rowing back on recent fiscal austerity,” said Jason Tuvey, senior emerging markets economist at Capital Economics.

For Mazen al-Sudairi, head of research at Al Rajhi Capital, the government must depend on other means to shore up the economy, “and probably the role of PIF in supporting local economy will increase,” he said, referring to Saudi Arabia’s sovereign fund, Public Investment Fund.

Saudi Arabia said it was committed to achieving the goals outlined in Vision 2030 – a reforms scheme aimed at diversifying the economy away from oil revenues – but that programs under the vision would undergo “structural improvements” and would be reprioritized to spur growth.

The economy is expected to shrink by 3.8% this year, the budget document