Quarterly oil market update- Q2 2017: (OPEC Discipline Waning?)
Macroeconomic ReportOil prices declined by 8 percent quarter-on-quarter in Q2 2017, the first such decline since Q1 2016. Higher OPEC oil production, mainly from Nigeria and Libya, plus continued rises in US oil production, were the primary triggers for the slump in prices. Going forward, doubts remain over OPECs ability to, firstly, maintain discipline amongst members and, secondly, prevent sizable increases in supply from Libya and Nigeria. In addition, as the recovery in US oil production continues, with US shale oil supply expected to achieve an all-time record high in the next few months, the risk to oil prices remains firmly skewed to the downside.
Temporary outages helping balance oil markets
Macroeconomic ReportTemporary outages helping balance oil markets
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.
Oil prices and the Saudi Stock Exchange (TADAWUL)
Macroeconomic ReportWith Saudi Arabia being a predominantly oil-based economy, major changes in the price of oil are likely to be followed by sentimental as well as real changes in the stock market. When a major downward movement in international oil prices occurs, this will usually be accompanied by an immediate/short-term impact on the stock market, as a result of change in sentiment. While sentimental changes often impact the stock market immediately, real changes will take effect over the longer term. If oil prices remain low, this ultimately affects economic policy framework, private sector activity and corporate profitability. The attached report examines the nature of the Tadawul All Share Indexs (TASIs) relationship with global oil prices.
Oil market dynamics and Saudi fiscal challenges
Macroeconomic ReportThe recent OPECs decision not to cut output adds further uncertainty not only on the global oil market, but also on the outlook for the Kingdoms fiscal policy. In this report we examine the global environment that led to such decision. We note that while such decision along with other variables in the market would result in different price levels over the next two years, prices of $85 and 83 per barrel for 2015 and 2016, respectively, are most likely. These lower prices will have a direct impact on the balance of payments and fiscal position of the Kingdom. In this report, we examine a number of fiscal policy reactions to different budgetary outcomes and implication of each on the non-oil economy.
