Saudi Arabia to cut oil production by additional 1 million bpd

Saudi Aramco's Abqaiq oil processing plant. Saudi Arabia's energy ministry said it had asked Aramco to make an additional voluntary output cut of one million barrels per day. (AFP/File)
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Updated 12 May 2020

Saudi Arabia to cut oil production by additional 1 million bpd

  • Voluntary cut for June is in addition to reductions already agreed with OPEC+ last month
  • Kuwait also announced additional cut for next month

Saudi Arabia will unilaterally cut an extra 1 million barrels of oil production per day from June in a renewed effort to stabilize global energy markets.

The Kingdom’s energy ministry told Saudi Aramco to further reduce the output level beyond the historic reductions agreed with OPEC+ countries last month, bringing the total the Kingdom is pledged to reduce to nearly 5 million barrels a day.

From next month, Saudi Arabia will produce only 7.5 million barrels, the lowest in two decades and well below capacity of more than 12 million barrels. 

“We want to expedite the process of returning back to normal,” Energy Minster Prince Abdul Aziz bin Salman said.

An energy ministry official said the new cut was intended to “encourage” other members of the OPEC+ alliance, which includes Russia, to implement the cuts they have already agreed on. The UAE and Kuwait signaled they were ready to follow the Saudi cuts with smaller cuts of their own.

OPEC+ will debate a possible extra round of cuts next month as the global oil glut continues.

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Some analysts saw the new cuts as an attempt to help the struggling American shale industry, which has been hit by closures and bankruptcy after the oil price collapse.

But Brent crude, the global benchmark, fell 3.4 percent after the announcement to $29.50, with West Texas Intermediate, the American standard, also down at $24.21 per barrel.

The move in the global oil market came after Saudi Arabia took drastic measures to overhaul its finances amid the global economic shock of the coronavirus pandemic.

The value added tax will be tripled to 15 percent, cost of living allowances for government employees cut, and capital spending on some big projects reduced or delayed.

But megaprojects such as NEOM and the Red Sea Development, core parts of the Vision 2030 reforms, will carry on. 

“It may not be as fast as it used to be, but they are continuing,” Finance Minister Mohammed Al-Jadaan said.

The increase in the VAT, bigger than the IMF has called for in the past, would add to the cost of living, but Al-Jadaan said the effect would be minimal because coronavirus lockdowns would depress consumer spending.

Some analysts said the measure was a return to “austerity” economics amid the global recession caused bythe pandemic. Tarek Fadlallah, chief executive of Nomura Asset Management in the Middle East, said: “The subtle approach to diversifying the Saudi economy and raising non-oil revenues has been too slow.

“The authorities have accepted the need to induce a painful and immediate overhaul of the economy in the hope of longer-term gains.”

 


Thailand finance minister: economy to recover next year with 4% growth

Updated 23 November 2020

Thailand finance minister: economy to recover next year with 4% growth

  • Economy had bottomed but recovery was not fast as the battered tourism sector hurt supply chains
  • Budget for the next fiscal year will still focus on boosting domestic activity

BANGKOK: Thailand’s economy is expected to grow 4 percent in 2021 after a slump this year and fiscal policy will support a tourism-reliant economy struggling from the impacts of the coronavirus pandemic, the finance minister said on Monday.
Southeast Asia’s second-largest economy shrank a less than expected 6.4 percent in the third quarter from a year earlier after falling 12.1 percent in the previous three months.
The economy had bottomed but recovery was not fast as the battered tourism sector, which accounts for about 12 percent of gross domestic product (GDP), has also hurt supply chains, Finance minister Arkhom Termpittayapaisith said.
“Without the COVID, our economy could have expanded 3 percent this year, he said. “As we expect a 6 percent contraction this year, there is the output gap of 9 percent,” he told a business forum.
“Next year, we expect 4 percent growth, which is still not 100 percent yet,” Arkhom said, adding it could take until 2022 to return to pre-pandemic levels.
There is still fiscal policy room to help growth from this year’s fiscal budget and some from rehabilitation spending, he said.
The budget for the next fiscal year will still focus on boosting domestic activity, Arkhom said, and the current public debt of 49 percent of GDP was manageable.
Of the government’s 1 trillion baht ($33 billion) borrowing plan, 400 billion would be for economic revival, of which about 120 billion-130 billion has been approved, Arkhom said.
He wants the Bank of Thailand to take more action short term on the baht, which continued to rise on Monday, despite central bank measures announced on Friday to rein in the currency strength.
“They have done that and they have their measures... which should be introduced gradually and more intensely,” Arkhom said.