Saudi oil sector expands 5.1%

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TEAM EFFORT: Increasing supplies of natural gas is essential for the Kingdom’s economic growth.
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Updated 04 July 2016
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Saudi oil sector expands 5.1%

JEDDAH: Saudi Arabia’s economy expanded at its slowest rate in three years during the first quarter of 2016, official data showed.

Some analysts said the data pointed to a risk of growth in Saudi Arabia slowing to near zero this year, which would be its worst performance since the global financial crisis of 2009.
Gross domestic product, adjusted for inflation, grew 1.5 percent from a year earlier between January and March, down from a revised growth rate of 1.8 percent in the fourth quarter of 2015, the state statistics office said. It was the slowest growth since 0.3 percent in the first quarter of 2013.
The oil sector expanded 5.1 percent in the first quarter of this year as Saudi Arabia increased its production of crude and exported more refined products.
But the non-oil sector shrank 0.7 percent, its worst performance in at least five years.
“The important thing to remember is that austerity will be a multi-year process. There will be more measures in the next few years and these will continue to keep growth subdued,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Within the non-oil part of the economy, the private sector grew just 0.2 percent in the first quarter while the government sector shrank 2.6 percent, the official data showed.
The weakness of the non-oil sector was partly due to the fact that the first quarter of 2015 was unusually strong; in January that year, authorities awarded public employees two months’ extra salary to mark his accession to the throne.
But the fourth-quarter 2015 growth rate of 1.8 percent was revised down sharply from an original estimate of 3.6 percent. That points to the possibility of a similar revision for the first-quarter figures.
Malik said ADCB was cutting its Saudi GDP growth forecast for the whole of this year to a drop of 0.1 percent, from a previous prediction of 0.5 percent growth.
She noted that while private sector and non-oil activity could pick up slightly from the second quarter of this year, partly because there were signs that the government was paying some of its outstanding bills to private firms, oil output was not continuing to rise significantly year-on-year.
If the economy slows excessively, the government still has the option of spending more to stimulate growth; the central bank holds $573 billion of net foreign assets, and Riyadh has begun borrowing abroad this year to finance some expenditure.
But if it eases up on its austerity program too much it may increase pressure on the Saudi riyal’s peg against the US dollar, fueling concern among some foreign investors about the long-term sustainability of its economy.
In a report released late last month, London-based Capital Economics said it was expecting growth of between zero and 0.5 percent this year.
“Further ahead, as the fiscal squeeze continues, we think the economy is likely to remain weak for the foreseeable future.”


Oil slips to around $63 as Iran concerns fade for now

Updated 36 sec ago
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Oil slips to around $63 as Iran concerns fade for now

  • US crude inventories expected to fall for 6th week
  • Goldman cuts 2019 oil demand forecast

LONDON: Oil slipped to around $63 a barrel on Tuesday as concerns faded for now that rising tensions in the Middle East would escalate and hit oil supplies, compounding the impact of a weaker demand outlook.
Iran’s capture of a British oil tanker last week sparked worries about supply disruptions in the Strait of Hormuz, through which about a fifth of the world’s oil flows, prompting crude to rally on Monday.
But oil prices have since pared some gains. Brent crude fell 31 cents to $62.95 a barrel by 1227 GMT on Tuesday. US West Texas Intermediate crude slipped 23 cents to $55.99.
“The response of oil prices to the seizure of a British oil tanker by armed Iranian forces near the Strait of Hormuz has been amazingly muted so far,” said Carsten Fritsch, analyst at Commerzbank.
“It appears that the majority of market participants are convinced that there will be no open conflict between the West and Iran,” he said.
The tensions come as the United States aims to cut off Iran’s oil exports and against the backdrop of supply cuts led by the Organization of the Petroleum Exporting Countries since the start of the year to prop up prices.
As part of US efforts, Washington has imposed sanctions on Chinese state-run energy company Zhuhai Zhenrong Co. Ltd. for allegedly violating restrictions imposed on Iran’s oil sector.
Despite lower Iranian exports and OPEC’s voluntary supply curbs, oil supply is exceeding demand due to strong growth in output from the United States and other non-OPEC producers, according to the International Energy Agency.
A weaker outlook for oil demand because of slowing economic growth has weighed on prices, which are still up by 18% in 2019 helped by the OPEC-led supply pact.
“Although prices had been driven by supply developments in the first half of the year economic considerations are making oil bulls careful this month,” said Tamas Varga of oil broker PVM.
Goldman Sachs lowered its 2019 oil demand projection on Sunday, joining other forecasters such as the IEA and OPEC in trimming its outlook for fuel use.
Oil may gain further support from expectations of another drop in US crude inventories in weekly reports due later on Tuesday and on Wednesday. Analysts expect a 3.4 million-barrel drop in crude stocks.
The American Petroleum Institute, an industry group, releases its inventory report at 2030 GMT.