RIYADH: Annual growth in the Saudi oil sector will remain positive in 2016 with average oil output expected to increase slightly, as the Kingdom continues to protect its share in the oil market, according to a report. The current period of low prices is set to remain throughout 2016 pulled down primarily by persistently high oil supply, stated the report from Jadwa Investment.
“Saudi crude production averaged 10.2 million barrels per day in 2015 and we do not see any cuts in production to support upward movement in prices going forward. We therefore expect 2016 Saudi production to be unchanged, year-on-year, at 10.2 million barrels per day in 2016,” added the Jadwa economists.
So far Saudi policy of market share has worked with lower prices undercutting both OPEC and non-OPEC competitors in key markets, they pointed out.
The combination of low oil prices, oil hedges expiring and tighter lending conditions will result in total US production declining by 7 percent or 0.5 million barrels per day in 2016, to a total of 8.8 million barrels per day, compared to an average growth of 16 percent between 2012-14, according to the report.
But Saudi Arabia’s non-oil private sector will continue to grow albeit at a slowing pace, as reduced government spending will most likely have a negative impact on business activity. However, growth in all sectors in the non-oil private economy will remain positive, added the Jadwa report.
“As oil prices fall further, the current account balance will record a second consecutive external deficit, while the fiscal deficit will remain in double digits. However, we believe the government will continue to gradually diversify its revenue base and consolidate its spending,” added the Jadwa economists.
They expect the Saudi economy to continue to slow in 2016, dragged down by slower growth in both the oil and non-oil sectors. “We expect economic growth to slow to 1.9 percent in 2016, down from 3.4 percent in 2015,” said the report. It said that oil sector growth is expected to slow to 0.9 percent in 2016 compared to 3.1 percent in 2015.
The slower growth in the oil sector will mainly be due to a marginal rise in oil production following a more pronounced increase of 4.3 percent in 2015. This is likely to come as the Kingdom continues to satisfy its growing domestic energy consumption as well as maintain its market share in the global oil market, added the Jadwa report titled ‘The Saudi Economy in 016.
Growth in the non-oil private sector is expected to continue to slowdown but remain positive at 2.6 percent, it added.
“We predict a growth of 4 percent in the utilities sector which makes it the fastest growing sector in the Kingdom in 2016,” said the Jadwa economists. “This is because the sector is expected to benefit from significant additions to power and water generation, transmission, and distribution projects,” the report said.
The non-oil private sector should continue to be the engine for growth in the economy, with government spending remaining central for the growth in private sector activity. Corporate lending and domestic consumption will also be primary drivers for growth. Within the non-oil private economy, wholesale and retail and transport are likely to also be among the fastest growing sectors.
