Oil prices averaging $31.5 a barrel are likely to push Saudi Arabia's budget surplus to a record $29.8 billion in 2004 and fuel economic growth of three percent, SAMBA Financial Group said in a half-year report.
The estimates were sharply higher than in SAMBA's first-quarter report, in which it forecast average prices for Saudi oil this year of $28.5 per barrel, a budget surplus of $5.5 billion and real gross domestic product (GDP) growth of just one percent.
"2004 is shaping up to be the best year for the Saudi economy in decades," said the report by chief economist Brad Bourland which was received by Reuters on Sunday.
The bank said the world's biggest oil exporter sold its crude for an average of $32 per barrel in the first six months of 2004, far exceeding the $19-a-barrel price which SAMBA said the government used to determine its fiscal budget.
"All the indications are that the (oil price) strength will continue for the rest of the year. Conservatively assuming some oil price fall-off, we forecast prices for WTI (West Texas Intermediate) to average $35 for the year, and for Saudi oil to average $31.5," it said.
With Saudi Arabia currently pumping above its Opec quota at 9.1 million barrels per day (bpd), that would translate into record oil revenue of around $100 billion, up from last year's $86 billion, which was the highest in two decades.
Prices had been pushed higher by supply shortfalls in Iraq and Norway but the fundamental strength came from demand linked to a global economic expansion, particularly in Asia, it said.
Markets may be entering a period "requiring oil production from Saudi Arabia in a range of 8-10 million bpd over the next many years, versus the 6-8 million bpd of the past two decades, and at prices ranging from $25-$35 per barrel versus $15-$25".
SAMBA predicted government expenditure would be about 10 percent over budget at $68 billion "meaning the bulk of the oil revenue excess will go toward build-up of foreign assets at the central bank and debt reduction".
It also saw foreign assets at the central bank, SAMA, growing this year to $75 billion, up from $59.7 billion at the end of 2003 and $41.7 billion a year before that.