Oil prices have stabilised as colder U.S. and European temperatures raise the prospect of winter heating demand. But as Sonia Legg reports there was more pain for Saudi Arabia as stocks fell sharply after tax rises were announced to compensation for loses from low oil prices.
It's one of the richest kingdoms in the world. But when your economy is built on oil there are always risks, especially if you're still pumping during a glut. The problem has left Saudi Arabia with a record budget deficit of $98 billion dollars - that's 15 percent of GDP. It's having to cut hard to make up a revenue fall of around 23 percent. King Salman Bin Abdulaziz made the announcement. (SOUNDBITE) (Arabic) KING OF SAUDI ARABIA, SALMAN BIN ABDULAZIZ, SAYING: "This budget represents the beginning of an integrated and comprehensive programme to build a strong economy which has multiple sources of income and where savings are growing and jobs are many." Not everyone is viewing the budget in such a positive way. Saudis' will see the price of water, electricity and petrol rise as subsidies are cut. A value-added tax is also being introduced on soft drinks and tobacco. And growth - currently around 3.3 percent - will be weaker, says IG's Chris Beauchamp. (SOUNDBITE) (English) IG, MARKET ANALYST, CHRIS BEAUCHAMP, SAYING: "Saudi Arabia seems to be hunkering down. I think these budget changes were first recognition of that. At the moment they're sticking with their strategy of maintaining production at current levels but I think if they're preparing for a long war, if you like, we'll see cuts to production in due course otherwise we face a world where prices continue to fall." Oil provided 77 percent of Saudi Arabia's revenue for 2015. And prices on Tuesday weren't far of 11-year lows, despite signs of colder weather. Benchmark Brent crude was around $37 per barrel - it's fallen by more than two thirds in 18 months. But still Saudi Arabia still refuses to cut production, on the basis it can withstand low prices for longer than many if its rivals - particularly some struggling U.S. producers.