Oil & Energy

Google Ad

The Saudi Arabian economy recovered in the first quarter of 2018 of shrinking in 2017. With oil production set to raise 20% with King Salman bin Abdulaziz Al Saud intention to boost oil production by up to 2 million bpd. There are hopes this will boost the stagnant non-oil segments.

Saudi Economy 2018

Saudi Arabia has posted a budget deficit for the past four years as it tries to transform it's economy to less oil dependant per the Vision 2030 plan. The Kingdom to fund the deficit is borrowing from domestic and international markets and rose fuel and power prices. Saudi Arabia’s economy began to recover in the first quarter of 2018 after it had been shrinking for the first time in eight years during 2017 the government confirmed Sunday. The return to growth was all to do will the recovery in the oil price and has not been lost on those in charge. 

Highlights

  • Gross domestic product, adjusted for inflation, grew 1.2 percent from a year earlier in the first three months of 2018
  • GDP had dropped from a year earlier in every quarter of 2017
  • GDP in 2017 shrank 0.7 percent.
  • The oil sector comprises over 40 percent of the KSA economy, and grew 0.6 percent from a year ago in Q1 up from a 4.3 percent decline in the last quarter of 2017.
  • Unemployment remains near 13 percent among Saudi citizens
  • The Private sector rose 1.1 percent, up from 0.4 percent in last year’s fourth quarter.
  • The construction industry fell  2.4 percent from a year ago in Q1
  • The wholesale and retail sectors plus restaurants and hotels shrank 0.5 percent

Hundreds of thousands of foreign workers have left Saudi Arabia as projects and jobs have collpased this has also crushed consumer demand. An increase in oil production should have a flow affect across the board in time.

Much of the stagnation is from the five percent value-added tax brought in at the start of 2018 to attempt to reign in the deficit. Since 2014, Saudi Arabian budget deficits amount to $260 billion  with a projected deficit in 2018 shortfall of $52 billion. With oil prices rising since the nadir of 2016, when OPEC and non-OPEC producers made a pact to cut output. The price has risen to four year years and at the most recent OPEC meeting it was agreed to raise production again by 600k to 1 million bpd. Since then the U.S. has ramped up it's threats to Iran and wants no one importing Iran oil.

With the jump in oil futures prices U.S. President Trump called the Saudi King and asked for help of up to 2 million bpd. The King agreed, and why not oil revenue accounts for 70 percent of Saudi government income. The fallout from Iran and OPEC appears to be something KSA is prepared to wear. The upside would be a much faster shrinking of the nation's deficit, boost to the domestic economy and a potentially earlier transition to Vision 2030. 

saudi aramco
Saudi Arabia Ready To Produce

King Salman bin Abdulaziz Al Saud on Saturday received a call from U.S. President Donald Trump and agreed on producing countries to compensate for any potential shortage of supplies. Trump tweeted that Saudi Arabia will add up to 2 million bpd. WTI Oil closed Friday over $74 in New York trading.

The offical release from the Kingdom of Saudi Arabia

Custodian of Two Holy Mosques receives phone call from US President

Saturday 1439/10/16 - 2018/06/30

Jeddah, Shawwal 16, 1439, June 30, 2018, SPA --

Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud received today a telephone call from President Donald Trump of the United States of America. During the phone conversation, they discussed the distinguished relations between the two countries, as well as latest developments in the regional and the international arena. The two leaders stressed the need to make efforts to maintain the stability of oil markets, the growth of the global economy, and the efforts of producing countries to compensate for any potential shortage of supplies. --SPA 16:05 LOCAL TIME 13:05 GMT 0009

 U.S. President Trump Tweet

Trump KSA

Oil prices soared to around $69 leading into the latest OPEC meeting and pulled back to $68 before the U.S. made a statement that all countries importing oil from Iran need to stop or they will face sanctions. For the Saudis this may be a huge opening as they are long declared enemies of Iran and would love nothing more than get their production up at these high dollar levels.

Saudi Arabia is Opec’s largest producer and significantly was one of the few nations to support Mr Trump’s decision to pull out of the Iran nuclear deal and is the leader of Arab efforts to curb Tehran’s influence in the Middle East.

The Saudi economy has recovered but the non-oil component is still squeezed by austerity measures. China is Iran's biggest customer and look likely to ignore America's directive. Here lies another incentive for the Kingdom with Russia now overtaking Saudi Arabia as the leading exporter of crude to China the Saudis have a huge opportunity here and at the same time weaken their sworn enemy.

Saudi Arabia last week announced that the kingdom’s domestic output could be increased from nearly 10m b/d in May to 10.6m b/d, and hit record levels of about 11m b/d later this summer. This also flys in the face of the OPEC agreement and on Iran's 'outrage' as these total Saudi increases could be far higher than agreed at the meeting last month.

The Kingdom has the largest spare production capacity with an additional 2m b/d in addition to the May output of 10m b/d pumped in May. Amin Nasser, chief executive of Saudi Aramco in an interview with the Financial Times last month said that the kingdom could ramp up and sustain production at 12m b/d, but then said move could take around six months.

Another incentive is the listing and private allocations of Saudi Aramco shares at the best possible price for the Kingdom. We know from earlier in the year Saudi Arabia received an offer from a Chinese investor interested in acquiring a stake in the oil company, and was considering the offer.

With the trade war entering growing intensity with China the thought around the desk is that Iran is now in play as a bargaining chip with China in trade negotiations. Iran's response has been that if KSA does increase 2 million barrels then OPEC is dead. KSA and Russia have developed new alliances and Iran threatened to even attend the last OPEC meeting. It would seem that Saudi Arabia would not be perturbed at having either no OPEC or an Iran less OPEC or an even more formal agreement with Russia.

For more on Saudi Arabia Politics  Follow Ellen Wald Here

Sources: Saudi Arabia Government Media;

From The TradersCommunity News Desk

Log in to comment
Discuss this article in the forums (0 replies).