Economic updates
Our in-depth, independent reports cover the macroeconomic environment, the Saudi government’s annual budget, and Saudi Arabia’s monetary and financial developments, labor market, and inflation.
Temporary Outages Helping Balance Oil Markets
Oil market reportBrent oil prices surged to an average of $45 per barrel (pb) in Q2 2016, up 35 percent quarter-on-quarter, due to a combination of developments. Firstly, oil outages from Canada and Nigeria resulted in at least 1.5 mbpd being temporarily unavailable to global oil markets. Secondly, slowing US shale oil output resulted in year-on-year growth in US crude oil imports being consistently positive for the first time in six years. ‘Brexit had a relatively modest impact on oil markets, with Brent slipping back slightly below $50pb immediately following the UKs decision to leave the European Union. The effects over the longer term are less clear, with a worse-case scenario being a global contagion effect resulting in increased volatility in global oil and financial markets.
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Oil Note: OPEC Announces Production Cuts
Macroeconomic reportOPEC agreed to cut its own production by 1.2 million barrels per day (mbpd), to 32.5 mbpd, on 30th of November. Oil prices immediately rose by 8 percent following the announcement and could rise even further in the short term. Whether prices remain elevated will depend on OPEC implementing its agreement with discipline as well as no major rises in US shale oil supply. Overall, whilst the OPEC cuts represent an up-side risk to oil prices, due to the hurdles mentioned above, we are not revising our current forecasts just yet, but will be monitoring developments closely.
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Quarterly oil Market Update (Q3 2016): Are Oil Markets better off with OPEC cuts?
Oil market reportOPECs decision to announce, but not to implement, a cut in production immediately sent Brent oil prices up 6 percent at the end of September. Prices were further supported by statements from Russia expressing its readiness to cooperate in order to limit oil output. OPEC plans on meeting in November, when the extent of OPEC cuts and individual country quotas are to be decided. Whilst the deal to cut remains fragile and fraught with numerous obstacles, as a result of the financial difficulty faced by a number of OPEC member economies, most notably Venezuela, Nigeria and Libya, there will be immense pressure to ensure some sort of deal is reached in November. In this context, we see the most likely outcome being an agreement to cut production, but only by a small amount, more akin to a production freeze rather than an outright cut. Such an agreement would underline OPECs intention to limit further rises in production and help stabilize oil prices at current levels (around $50 per barrel).
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