The tightening of global oil markets in 2012 has been a cause of concern for many of the world’s major economic powers. For Saudi Arabia, however, high oil prices coupled with rising production levels mean revenues from hydrocarbons could hit record levels this year.

A report published by Riyadh-based investement firm Jadwa Investment predicts the world’s largest oil exporter will report oil revenues at an all-time high of more than $303bn in 2012. Despite attempts by the kingdom to cool the market through boosting production, prices continue to rise.

During 2012 the oil price has averaged about $120 a barrel, with the ban on Iranian oil imports by the US being the main driver. The sanctions against Iran mean many countries, including China and India, have started to increase their oil inventories, adding further pressure to already tightening supplies. Other concerns include the ongoing dispute between Sudan and South Sudan, and the unrest in Syria.

To make up for the shortfall, Saudi Arabia has been pumping about 9.9 million barrels a day (b/d) of oil during 2012. Despite the kingdom producing extra oil, the price has not fallen.

“The more the Kingdom produces, the lower its spare production capacity becomes, meaning the smaller the cushion to cope with new supply disruptions,” states the Jadwa Investment report. “Concerns about available spare production capacity are weighing on market sentiment.”

With oil accounting for 90 per cent of the kingdom’s revenues, Riyadh could end the year with a surplus of $154bn if high oil prices and production levels remain.

Oil prices are expected to fall to levels similar to 2011 as the year progresses, with increased supply coming online from Iraq and Libya helping to loosen the market. Countries such as the US and the UK are considering the release of supplies from strategic reserves to cool the oil market. Oil consumption is also expected to fall during the latter part of 2012 as fiscal austerity in Europe hits consumer spending, which, in turn, will affect manufacturing hubs such as China and India.

Riyadh has stated it is not comfortable with such high prices and the increased strain on production. The caution is well advised, because the last time oil prices spiked, in 2008, the price plummeted by more than $100 a barrel within six months.

“We do not think the government will respond to another year of bumper oil revenues by increasing spending,” states the Jadwa report. “The bulk of the extra oil revenues will be used to build up savings in the form of foreign assets.”

Jadwa predicts that Saudi Arabia’s foreign assets, held at the Saudi Arabian monetary Agency will increase by about $100bn in 2012.