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.

SAMA to become Saudi Central Bank, with full independence

Updated 25 November 2020

SAMA to become Saudi Central Bank, with full independence

  • New central bank to be linked directly to king but its president independent of government
  • Bank’s core responsibilities to maintain monetary reserves, boost confidence, trust in financial sector

RIYADH: The Council of Ministers on Tuesday approved a new law which includes changing the name of the Saudi Arabian Monetary Authority (SAMA) to the Saudi Central Bank.

Under the legislation, the new Saudi Central Bank will be linked directly to the monarch and will enjoy full financial and managerial independence.

The Saudi Central Bank Law set out three core objectives for the new institution namely, to maintain cash stability, boost confidence and trust in the financial sector, and support economic growth.

The new legislation states that the central bank is responsible for setting and managing monetary policy and it outlines the relationship between the bank, the government, and other international important organizations and bodies. It also sets a framework to govern the bank’s operations and decisions.

Fadhel Al-Buainain, an economic expert and member of the Shoura Council, said one of the important aspects of the Saudi Central Bank Law was that it was linked directly to the king.

“This enhances its full independence with respect to setting the monetary policy and the bank’s relationship with the government and global organizations,” he added.

The law states that the abbreviation SAMA, which was established in 1952, would remain unchanged due to its historical importance domestically and internationally.

“The fact that the bank will keep the SAMA abbreviation unchanged is important and reflects a wise decision because the abbreviation is widely-known,” Al-Buainain said.

While the SAMA acronym will remain, Hassan Alwatban, an economic consultant, outlined the differences between the monetary authority and the central bank.

For the central bank to perform its duties properly, he said it needed to be fully independent when it came to decision-making, especially decisions related to managing state funds.

Another difference was that the president of the central bank would not be under the state’s authority and their nomination would be made by a legislative authority. The government or state could not appoint or remove the president except by the most supreme judiciary authority.

Thirdly, he added, a government agency could not interfere in the bank’s affairs because the bank enjoyed full monetary power.

Alwatban told Arab News: “Therefore, changing the monetary authority to a central bank is healthy for the national economy.

“The tasks of the Ministry of Finance, which is responsible for financial policies, will be set apart from the tasks of the central bank, which is responsible for setting the monetary policies. Before the change, the tasks of the Ministry of Finance and SAMA overlapped.

“Besides, the Ministry of Finance was in charge of the financial policy and the monetary policy at the same time, a fact that made SAMA focus on serving the banks’ interests more than focusing on serving the interests of citizens,” he added.