Saudi Arabia will ‘come out on top’ in oil markets, JP Morgan predicts

Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia, May 21, 2018. (Reuters)
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Updated 13 June 2020

Saudi Arabia will ‘come out on top’ in oil markets, JP Morgan predicts

  • Analyst Christyan Malek: Saudi Arabia will come out on top in the fight for market share as non-OPEC and US production fades
  • The Kingdom will see its share of the market rise from the current level of 11.6 per cent to around 15 per cent

DUBAI: Saudi Arabia’s strategy in the oil market has won a vote of confidence from the American investment bank JP Morgan, which predicts the Kingdom will “come out on top” in the global energy business.

“Saudi Arabia will come out on top in the fight for market share as non-OPEC and US production fades,” JP Morgan analyst Christyan Malek said in a report on the oil industry, which suggested that Saudi Arabia will see a large increase in its share of the international oil market as the American shale industry weakens and production declines from outside the Organization of Petroleum Exporting Countries (OPEC).

The Kingdom, which has been leading global efforts to stabilize the global oil market in the wake of an unprecedented decline in demand because of the COVID-19 pandemic, will see its share of the market rise from the current level of 11.6 per cent to around 15 per cent — its highest level since the 1980s — by 2025, JPM said.

Oil production from the US shale fields, which propelled America to its position as the biggest producer in the world in 2019, is forecast to rise only slightly to 11m barrels a day this year. Before the crash in oil prices in March and April, US shale oil was expected to climb steadily to reach 17m barrels per day over the next decade.

Oil prices are down around 40 percent so far this year, but have recovered from historic lows in April after Saudi Arabia and Russia — via the OPEC+ alliance — orchestrated record cuts in output in April. Just last weekend, the deal was extended and tough new guidelines introduced to ensure oil producers comply with the new regime.

Prince Abdul Aziz bin Salman, Saudi Arabia’s energy minister, said: “Through our commitment to a proactive policy, within a cohesive and collective framework, we are restoring confidence to global oil markets. We have grounds to be optimistic about the future.”

JP Morgan expects demand to increase sharply in the second half of this year, for an average of 91m barrels per day for 2020. This is down from the 100m barrels per day the world was consuming before the pandemic first hit global economies. That level will only resume in November of next year, JP Morgan predicted.

With oil prices currently at comparatively low levels, capital expenditure in oil will be cut back, JP Morgan said, which could create a “supercycle” from 2022, leading to falling supply and a surge in crude prices.

JP Morgan is the biggest bank in the world measured by profits, and has been a partner of Saudi Arabia for many years, having helped fund the original investment in the oil industry in the 1930s.

Saudi Arabia’s 6-point plan to jumpstart global economy

Updated 07 July 2020

Saudi Arabia’s 6-point plan to jumpstart global economy

  • Policy recommendations to G20 aim to counter effects of pandemic

DUBAI: Saudi Arabia, in its capacity as president of the G20 group of nations, has unveiled a six-point business plan to jump start the global economy out of the recession brought on by the COVID-19 pandemic.

Yousef Al-Benyan, the chairman of the B20 business group within the G20, told a webinar from Riyadh that the response to the pandemic -— including the injection of $5 trillion into the global economy — had been “reassuring.”

But he warned that the leading economies of the world had to continue to work together to mitigate the effects of global lockdowns and to address the possibility of a “second wave” of the disease.

“Cooperation and collaboration between governments, global governance institutions and businesses is vital for an effective and timely resolution of this multi-dimensional contagion transcending borders,” Al-Benyan said.

“The B20 is strongly of the view there is no alternative to global cooperation, collaboration and consensus to tide over a multi-dimensional and systemic crisis,” he added.

The six-point plan, contained in a special report to the G20 leadership with input from 750 global business leaders, sets out a series of policy recommendations to counter the effects of the disease which threaten to spark the deepest economic recession in nearly a century.

The document advocates policies to build health resilience, safeguard human capital, and prevent financial instability.

It also promotes measures to free up global supply chains, revive productive economic sectors, and digitize the world economy “responsibly and inclusively.”

In a media question-and-answer session to launch the report, Al-Benyan said that among the top priorities for business leaders were the search for a vaccine against the virus that has killed more than half-a-million people around the world, and the need to reopen global trade routes slammed shut by economic lockdowns.

He said that the G20 response had been speedy and proactive, especially in comparison with the global financial crisis of 2009, but he said that more needed to be done, especially to face the possibility that the disease might surge again. “Now is not the time to celebrate,” he warned.

“Multilateral institutions and mechanisms must be positively leveraged by governments to serve their societies and must be enhanced wherever necessary during and after the pandemic,” he said, highlighting the role of the World Health Organization, the UN and the International Monetary Fund, which have come under attack from some world leaders during the pandemic.

Al-Benyan said that policy responses to the pandemic had been “designed according to each country’s requirements.”

Separately, the governor of the Saudi Arabian Monetary Authority said that it was “too early” to say if the Kingdom’s economy would experience a sharp “V-shape” recovery from pandemic recession.