Saudi economy sees ‘stabilization’: Analyst

Saudi Arabia’s oil revenues have grown significantly. (Shutterstock)
Updated 20 November 2018
0

Saudi economy sees ‘stabilization’: Analyst

  • Saudi Arabia reduced its budget deficit by 60 percent to SR49 billion in the first nine months of the year
  • Paul Wetterwald: The most recent data suggests some kind of stabilization, but resisting the temptation to re-expand government spending in line with higher oil prices will remain a challenge

LONDON: Saudi Arabia’s reduction in its budget deficit marks a “stabilization” of its economy but avoiding big hikes in government spending will remain a challenge, according to a new research note.
Saudi Arabia reduced its budget deficit by 60 percent to SR49 billion ($13 billion) in the first nine months of the year, official figures published last month show.
The reduction — greater than anticipated in earlier budget forecasts — was the result of a significant growth in both oil and non-oil revenues, the Ministry of Finance said. 

A research note by Paul Wetterwald — chief economist for Indosuez Wealth Management, the global wealth management division of Crédit Agricole, said that this marked an “impressive” reduction in the deficit given it was accompanied by a rise in government spending.
Going forward, however, minimizing hikes in government spending will be key, Wetterwald wrote in the note circulated on Monday.
“The most recent data suggests some kind of stabilization, but resisting the temptation to re-expand government spending in line with higher oil prices will remain a challenge,” he wrote.
Wetterwald pointed out that Saudi Arabia’s debt-to-GDP ratio is set to rise over the coming years.

FASTFACTS


Oil slips 1% as US stockpiles surge, economic concerns grow

Updated 23 May 2019
0

Oil slips 1% as US stockpiles surge, economic concerns grow

  • Crude futures already fell by around 2 percent the previous day
  • US crude oil production climbed by 100,000 barrels per day (bpd) to 12.2 million bpd

SINGAPORE: Oil prices dropped by around 1 percent on Thursday, extending falls from the previous session amid surging US crude inventories and weak demand from refineries.
Brent crude futures, the international benchmark for oil prices, were at $70.36 per barrel at 0652 GMT, down 63 cents, or 0.9 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were down by 51 cents, or 0.8 percent, at $60.91 per barrel.
Crude futures already fell by around 2 percent the previous day.
“Rising inventories and a slowdown with refined product demand could suggest we could see further pressure (on prices),” said Edward Moya, senior analyst at futures brokerage OANDA.
US crude oil inventories rose last week, hitting their highest levels since July 2017, due to weak refinery demand, the Energy Information Administration said on Wednesday.
Commercial US crude inventories rose by 4.7 million barrels in the week ended May 17, to 476.8 million barrels, their highest since July 2017, the EIA data showed.
Beyond weak refinery demand for feedstock crude oil, the increase in commercial inventories also came on the back of planned sales of US strategic petroleum reserves (SPR) into the commercial market.
US crude oil production climbed by 100,000 barrels per day (bpd) to 12.2 million bpd, putting output near its record of 12.3 million bpd reached late last month.
Ole Hansen, head of commodity strategy at Saxo Bank, said “concerns about slowing (oil) demand growth due to the negative impact on the global economy of the US–China trade war” were also weighing on oil prices.
Countering these bearish price factors have been escalating political tensions between the United States and Iran, as well as ongoing supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) that started in January in an effort to prop up the market.
“Large but opposing forces have kept Brent in a $70-$75 per barrel range in recent weeks,” Morgan Stanley said in a note on oil markets published this week.
“Macroeconomic data has rapidly deteriorated, and this is reflected in weaker oil demand. At the same time, downside risk to supply is materializing in key countries (adding to OPEC’s production cuts),” the US bank said.
“On balance, however, we still see tightness in 2H19,” Morgan Stanley said, adding it expected Brent to trade in the $75-$80 per barrel range in the second half of 2019.
French bank BNP Paribas said high inventories meant that OPEC would likely keep its voluntary supply cuts in place.
“Supply management is here to stay,” the bank said.