HL: Saudi Arabia’s Oil Exports Drop Was Sign of Weaker Demand
Saudi Arabia shipped 10 percent less oil overseas in October than it did a year earlier, signaling demand was falling even before OPEC decided a month later to hold production unchanged with prices plunging.
Oil exports fell to 6.9 million barrels a day in October from 7.7 million barrels a day a year earlier, according to data from the Joint Organisations Data Initiative today. It was the sixth month in a row that Saudi Arabia produced less than 7 million barrels a day, the level it needs to balance its budget.
Crude slumped 43 percent this year as the Organization of Petroleum Exporting Countries sought to defend market share amid a U.S. shale boom that’s exacerbating a global glut. Saudi Arabia will stick to its policy to maintain output, the country’s oil minister Ali Al-Naimi said, according to state-run Saudi Press Agency.
“Now we can understand the reasons that compelled Saudi Arabia and OPEC to hold onto their market share,” said John Sfakianakis, the head of Middle East at Ashmore Group (ASHM) Plc, the London-based money manager specializing in emerging markets. “The problem is that they want to keep their market share while exporting less oil.”
Saudi Arabia led OPEC in opposing calls by members including Venezuela to reduce supply. The 12 member countries account for about 40 percent of global production.
“We know that demand is weak and we know that supply is more than what the market needs,” Sfakianakis said by phone from Riyadh, Saudi Arabia’s capital. “The question now is if the fall in exports is the cause of the Saudi policy to keep its market share or the result of it?”
Sfakianakis, a former adviser to the Saudi government, said the fall in exports and prices will create a problem for the kingdom’s finances. Saudi Arabia needs to keep exports at a minimum of 7 million barrels a day for the budget’s base-case scenario, he said. “For six months they are not being able to meet the base-case for exports,” he said.
Saudi Arabia has a solid economy with large enough financial resources to resist the impact of the current oil price fluctuation, Naimi said according to SPA.
Source: Bloomberg
