Saudi Arabia well equipped to sustain oil market share

Updated 28 January 2016

Saudi Arabia well equipped to sustain oil market share

JEDDAH: OPEC’s oil production is expected to rise by a further 500,000 barrels per day by Q4 2016 year-on-year, according to a report released by Jadwa Investment.
It said that the current period of low prices is set to remain throughout 2016, pulled down primarily as a result of persistently high oil supply. All-out competition between members of OPEC will be the main reason for continued oversupplied markets.
But Saudi Arabia remains well equipped to hold off any attempts of encroachment on its market share since it is currently the only major oil producer with spare oil production capacity, Jadwa economists added.
Saudi Arabia’s (3 percent of global oil demand) total crude consumption is expected to average 2.8 million barrels per day in Q4 2015 up 5 percent compared to the same period last year, states the Quarterly Oil Market Update released by Jadwa Investment this week.
The rise in oil demand is largely a result of the start up of the 400,000 barrels per day Yasref refinery which came online earlier in 2015.
Latest data shows that year-to-November 2015 crude demand was also at 2.8 million barrels per day, up 8 percent year-on-year, and slightly below our forecasted 2.9 million barrels per day for the full year 2015.
“We expect lower consumption in line with seasonal demand during cooler months in Q1 2016,” said the Jadwa research team.
“Looking further ahead in 2016, while demand for crude will increase as three new crude oil-powered electricity plants come online, higher domestic energy prices and increases in gas output will help keep consumption flat year-on-year,” said the report.
The Hasbah and Arabiyah gas fields will produce non-associated gas processed by the Wasit plant, said the Jadwa report.
“According to Saudi Aramco, the Wasit gas plant will add around 1.75 billion cubic feet of sales gas per day (bcf/d), which we expect will replace the use of more expensive industry diesel and crude oil in generating electricity,” said the economists.
According to the report, total oil output from OPEC rose by 5 percent in Q4 2015, year-on -year, as a result of large increases from Iraq (up 22 percent) and Iran (up 10 percent), which pushed the organization’s quarterly average to 32.5 million barrels per day.
OPEC production in December 2015 was 2 million barrels per day higher than the November 2014 total, when it switched to defending market share from its previous policy of cutting output to maintaining prices.
Jadwa economists believe that lower for longer oil prices will have a direct implication over the kingdom’s current account and fiscal budget.
“We have therefore revised down our forecast for the kingdom’s fiscal and external balances for 2016,” they said.
The fiscal deficit is now expected to reach SR402 billion (17.8 percent of GDP), up from SR313 billion forecasted previously, according to the report.
Imbedded in our new forecast is a sharper reduction in total government spending to SR890 billion, down from our earlier forecast of SR922 billion.
“This reduction in spending will likely be achieved by a stronger implementation of initiatives specified in the budget announcement, which included proposed reforms to improve budgetary procedures, and reviews to existing government projects,” said the Jadwa research team.
“While we now forecast spending to be lower for 2016, our forecast of a steeper decline in total revenue (from SR609 billion to SR488 billion) will mean that the deficit will widen in 2016,” the report added.
The lower spending by the government will cause the non-oil private sector to post a slower growth than previously anticipated.
“We therefore expect growth in non-oil private sector activity to slow down to 2.6 percent, compared to our previous forecast of 2.8 percent. However, we maintain our view that overall GDP will expand by 1.9 percent in 2016,” said the economists.
“We have revised down our forecast for the 2016 current account deficit from $40 billion (6.3 percent of GDP), to $72 billion (12 percent of GDP),” they said.
“As a result of the decline in prices, we think 2016 oil export revenues will fall to their lowest levels since 2003 to reach $101 billion. We expect both non-oil exports and imports to rise marginally compared to their 2015 levels,” said the Jadwa researchers.
The deficit in the services account will meanwhile shrink as a result of lower expected demand for services during 2016.
“We have also revised our forecast for inflation to 3.9 percent, up from 2.5 percent previously. The recent increase to energy and water prices will likely put pressure on prices of multiple components of the headline index, including the housing, electricity, and water, and the transport components,” said the Jadwa economists.


Etihad and Air Arabia start Abu Dhabi-based budget carrier

Updated 47 min 36 sec ago

Etihad and Air Arabia start Abu Dhabi-based budget carrier

  • The new Air Arabia Abu Dhabi will be launched in due course: Etihad CEO
  • Etihad invested heavily in carriers around the world

LONDON: Etihad Airways is setting up a low-cost carrier with Air Arabia in what is a major change of direction for the Abu Dhabi-based airline.
It represents Etihad’s first tie-up with another airline since its ill-fated equity alliance strategy which saw it take stakes in a number of struggling European carriers, some of which went bust, including Air Berlin.
Air Arabia Abu Dhabi will operate from Abu Dhabi International Airport and will target rising demand from the budget segment, the pair said in a statement on Wednesday.
Etihad Group CEO Tony Douglas said: “This exciting partnership supports our transformation program and will offer our guests a new option for low-cost travel to and from Abu Dhabi, supplementing our own services.”
Abu Dhabi-based Etihad and Dubai-based Emirates invested heavily in their premium-cabin offering during the UAE’s boom years, tapping into strong regional demand for business and first-class travel. However, the sharp fall in oil prices since 2014 and a regional economic slowdown has hit premium travel hard and forced both carriers to cut costs and lay off staff.
Etihad’s move into the low-cost segment mirrors a similar partnership between Emirates and flydubai, the low- cost carrier started in 2008.
Etihad and Air Arabia did not say when flights would start or which routes would be served, but that further details “would be communicated in the near future.”
While premium travel continues to face headwinds in the Gulf, demand remains strong in the budget segment. Low-cost carriers accounted for a 17 percent share of seat capacity to and from the Middle East in 2018, compared to only 8 percent in 2009. 
Etihad Airways currently flies to about 80 destinations with a fleet of 108 Airbus and Boeing aircraft that carried 17.8 million passengers in 2018. Air Arabia, which is listed on the Dubai Financial Market, operates 54 Airbus A320 and A321 aircraft and serves 170 routes.