Saudi Arabia’s economy will stall this year with growth “close to zero” due to lower oil revenue, the International Monetary Fund said.The fund lowered its 2017 growth forecast to 0.1 percent from 0.4 percent, citing OPEC production cuts, uncertainty over oil prices and the structural reforms the country is undertaking to reduce its reliance on crude, it said in a statement on Friday concluding its Article IV consultation. The IMF also lowered its non-oil growth projection to 1.7 percent from 2.1 percent — compared with actual growth of 0.2 percent in 2016.
Source: IMF Sees 2017 Saudi Growth ‘Close to Zero’ on Oil Prices, Cuts – Bloomberg
Is the oil exploration & production spending supply hole real and will it result in a production gap in a couple of years?
The oil industry and its analysts have begun to focus on how capital spending has declined so much recently that we could find that we do not have enough oil within a couple of years to meet demand. This “supply hole thesis” has been used by Saudi to justify a production cut in order to signal producers to allocate more money into the sector and it has been what has been used by stuggling producers to hang on in the hope that the supply hole will drive prices back up to get them back to financial health.
Article by Amy Myers Jaffe (@AmyJaffeenergy) is executive director of energy and sustainability at the University of California, Davis, Graduate School of Management : Why a Coming Gap in the Supply of Oil Is Unlikely
Saudi Arabia is sending signals that it could boost its crude oil supplies in August to a new record level, overtaking Russia, the world’s top oil producer, as it gets ready for tough talks next month for a global output freeze pact.Industry sources say the kingdom, already the world’s largest oil exporter, started to raise production from June, after holding it steady for the first half of the year, to meet rising seasonal domestic demand as well as higher exports requirements.Higher production could give it more leverage during talks in September when both OPEC and non-OPEC producers are expected to revive a freeze deal to support oil prices, the sources say.In June, Saudi Arabia pumped 10.55 million barrels of oil per day, and lifted production to 10.67 million bpd in July, the highest in its history.Now the sources expect the OPEC heavyweight to raise its crude supplies to a further record this month as demand inside and outside the kingdom looks healthy.One source from outside OPEC said the Saudis were quietly telling the market output could rise further in August to as high as 10.8-10.9 million bpd.
Source: Saudi signals it may hit new oil output record ahead of freeze talks, sources say
Saudi Arabia, the world’s largest exporter of crude oil, has revised its investment policy for pound and euro denominated assets, its central bank said over the weekend, after Britain decided to leave the European Union. The bank didn’t specify what changes it made to the assets it holds, but said that the adjustments were a precaution against the turmoil unleashed in the market following the U.K’s referendum, which sent energy stocks sharply lower and saw the pound fall to a 30 year low against the dollar.
Source: Saudis Revise Investment Policy on Brexit —Energy Journal – MoneyBeat – WSJ
Banks in Saudi Arabia are coming under fresh pressure over products that allow speculators to bet against the kingdom’s currency peg, according to people with knowledge of the matter.The Saudi Arabia Monetary Agency has asked lenders to explain why they are offering dollar-riyal forward structured products to customers less than four months after the regulator banned options contracts that let speculators place wagers on a currency devaluation, the people said. The authority, known as SAMA, didn’t reply to requests for comment.Hedge funds such as PointState Capital and Pershing Square Capital Management have made bets that the country’s peg to the dollar will be broken as oil revenue plunges, even as the country maintains it has no plans to devalue and analysts including Capital Economics say such a move would be a last resort. Riyal forwards surged to 660 points, the highest since Feb. 15.“SAMA is likely getting concerned about the renewed volatility on the SAR forwards,” Apostolos Bantis, head of emerging market corporate research at Commerzbank AG, said by phone. “Considering its strong commitment to the peg and aim to keep volatility low, they may try to disincentivise local banks using other structured products.”
Source: Saudi Arabia Said to Probe Bank Currency Products on Peg Bet – Bloomberg
Saudi Arabia faces a vicious liquidity squeeze as capital continues to leak out the country, with a sharp contraction of the money supply and mounting stress in the banking system.Three-month interbank offered rates in Riyadh have suddenly begun to spiral upwards, reaching the highest since the Lehman crisis in 2008.Reports that the Saudi government is to pay contractors with tradable IOUs show how acute the situation is becoming. The debt-crippled bin Laden group is laying off 50,000 construction workers as austerity bites in earnest.Societe Generale’s currency team has advised clients to short the Saudi riyal, betting that the country will be forced to ditch its long-standing dollar peg, a move that could set off a cut-throat battle for global share in the oil markets.Francisco Blanch, from Bank of America, said a rupture of the peg is this year’s number one “black swan event” and would cause oil prices to collapse to $25 a barrel. Saudi Arabia’s foreign reserves are still falling by $10bn (£6.9bn) a month, despite a switch to bond sales and syndicated loans to help plug the huge budget deficit.
Source: AEP: Saudi financial crisis ‘could leave oil at $25’ as contractors face being paid in IOUs
The Treasury Department has released a breakdown of Saudi Arabia’s holdings of U.S. debt, after keeping the figures secret for more than four decades. The stockpile of the world’s biggest oil exporter stood at $116.8 billion as of March, down almost 6 percent from a record in January, according to data the Treasury disclosed Monday in response to a Freedom-of-Information Act request. The tally ranks Saudi Arabia among the top dozen foreign nations in terms of holdings of U.S. debt, and compares with China’s $1.3 trillion trove, and $1.1 trillion for Japan.Yet the disclosure may bring more questions than answers, because Saudi Arabia’s foreign reserves amount to $587 billion, and central banks typically put about two-thirds of their coffers in dollars, according to International Monetary Fund data. Some nations accumulate Treasuries in offshore financial centers, meaning the holdings show up under the data of other countries. For example, Belgium, which held $143 billion of U.S. government debt as of February, is home to Chinese custodial accounts, analysts say.“As we look at official and central bank and investment holdings of Treasuries around the world, we’ve seen a lot of fluctuations, we’ve seen a gradual erosion of positions that have been held for some time,” said Jim Vogel, head of interest-rate strategy at FTN Financial in Memphis, Tennessee. The impact of those reductions has been mitigated by purchases by overseas private investors, he said.
Source: U.S. Discloses Saudi Holdings of Treasuries for First Time – Bloomberg
DHAHRAN, Saudi Arabia (Bloomberg) — Saudi Arabia, the world’s biggest oil exporter, plans “significant growth” in output in 2016 and further international expansion, the head of the country’s state-run producer said, even as global oversupply contributed to a drop in crude prices from a year ago.Saudi Arabian Oil Co., also known as Saudi Aramco, will boost capacity at Shaybah oil field by 33% to 1 MMbpd in the next couple of weeks and will double natural gas production over the next decade, Amin Nasser, CEO, told reporters Tuesday at the company’s headquarters in Dhahran, eastern Saudi Arabia.“Even though it is challenging, it’s still an opportunity for us to grow,” Nasser said of the international expansion plans.
Source: Saudi Aramco CEO sees ‘significant growth’ in oil output in 2016
Saudi Arabia will probably keep producing crude at near-record levels under its newly appointed oil minister, Khalid Al-Falih, as the world’s largest exporter sticks with his predecessor’s policy of defending market share against higher-cost shale.Al-Falih, also chairman of the state producer Saudi Arabian Oil Co., said on his first day in office on Sunday that he will maintain the kingdom’s oil policy. His predecessor, Ali al-Naimi, had been leading a policy prioritizing sales over prices since 2014, driving some higher-cost producers, including U.S. shale drillers, off the market. In so doing, Saudi Arabia boosted output, adding to a supply glut. The strategy is showing signs of succeeding this year, with prices gaining more than 60 percent since tumbling to a 12-year low in January. Saudi Arabia could exceed its record output of more than 10.5 million daily barrels if it pumps more to meet a seasonal surge in domestic demand during the summer months, analysts from Emirates NBD PJSC and Qamar Energy said. The country, with the world’s second-largest oil reserves, pumped 10.27 million barrels a day in April.
Source: Saudi’s New Oil Boss Vows to Maintain Policy – Bloomberg