Saudi Riyal Forwards Set for Highest Level Since at Least 1996

  • Brent crude slumps to the lowest level in almost 12 years
  • Saudi Arabia is the world's biggest exporter of crude oil

Contracts used to bet whether Saudi Arabia will allow its dollar-pegged currency to weaken were poised for the highest level in almost two decades as oil prices plummeted.

Twelve-month forward contracts for the riyal climbed 260 points to 950 as of 3:49 p.m. in Riyadh, set for the steepest close since December 1996, when Bloomberg began collecting the data. That reflects growing speculation the world’s biggest oil exporter may allow its currency to slide against the dollar for the first time since 1986.

Saudi Arabia’s budget has been under pressure as oil, the nation’s main source of income, languishes at the lowest level in almost 12 years. Commerzbank AG says maintaining the riyal’s peg to the dollar is unsustainable as it threatens to further crimp government financing. The kingdom has already announced plans to cut expenditure and subsidies to cope with the decline in energy prices, and may tap local and international debt markets this year to fund a deficit.

Central bank Governor Fahad Al-Mubarak said in September the nation will stick with its dollar peg as long as oil underpins the economy, dismissing speculation that the currency system is under pressure.

Brent crude, a benchmark for half the world’s oil, sank as low as $32.16 a barrel on Thursday.