Oil consumption in Saudi Arabia, the world’s biggest crude exporter, is expanding at the slowest pace in at least six years as low energy prices hurt economic growth.
The kingdom’s demand for oil increased by an average of 24,000 barrels a day in the first five months of 2016, the slowest growth rate for that period since at least 2010, the first year for which data are available from the Joint Organisations Data Initiative in Riyadh. The International Energy Agency is now looking for a drop in demand in Saudi Arabia for all of 2016, after forecasting an increase earlier this year.
Consumption of gasoline, kerosene and other refined products contracted this year, slipping by 22,000 barrels a day in the first decline since at least 2002, when JODI began tracking data. JODI monthly data on total oil demand, which includes crude burned to generate electricity, dates back to 2009. Demand has been crimped after governments in the oil-rich region cut or removed fuel subsidies, BMI Research said in a July 27 report.
“If the oil slump continues into next year and governments are not in the position to use counter-cyclical fiscal measures to support the economy, we aren’t going to see a huge contribution to oil-consumption growth from the region,” Edward Bell, a commodities analyst at Dubai-based lender Emirates NBD PJSC, said in an interview.
Saudi Arabia has boosted output for years to sustain export income while also satisfying domestic demand. The kingdom’s consumption spikes between June and September when air-conditioning use peaks. Demand for refined fuels such as gasoline has doubled since 2003, according to JODI. Saudi Arabia, the United Arab Emirates, Qatar, Oman and Bahrain have reduced or eliminated fuel subsidies over the past year to limit government spending because of low oil prices. Brent crude, an international benchmark, has dropped 20 percent in the past year and traded at $42.46 a barrel on Friday compared with over $100 a barrel as recently as in 2014.
Gasoline demand in Oman grew 1 percent during the first four months of this year, far below the annual average growth rate of 9.6 percent over the past decade, according to BMI. “The slowing consumption in Oman causes concern that other countries that have enacted or plan to roll out subsidy reforms might see a greater impact than first anticipated,” it said in the report last week.
Saudi Arabia, the Middle East’s largest economy, was expected to contribute almost half of the 100,000 barrel-a-day increase in regional demand that the IEA forecast for this year. The Organization of Petroleum Exporting Countries expects the kingdom to contribute a comparable share of a projected 180,000 barrels a day in new consumption from the Middle East in 2017, the group said July 12 in its monthly report.
Slower economic growth is having a greater impact on energy demand in the region than subsidy removals, Bell said. Emirates NBD expects Saudi Arabia’s economy to grow less than 2 percent this year compared with 3.4 percent in 2015, a deceleration “that’s going to eat into demand for fuel,” Bell said. Energy use in the region is projected to grow, but at a slower pace.
“The Middle East is somewhat counter to all economic logic,” Bell said. “When we have an economic slowdown, energy demand never goes negative.”
Brent Crude Oil Breaks $80 Price Level Amid Supply Concerns
Oil markets climbed for a sixth day on Tuesday, reversing earlier losses, on fears over tight supply while surging prices of liquefied natural gas (LNG) and coal also lent support.
Brent crude futures gained $1.05, or 1.3%, to $80.58 a barrel at 0645 GMT, after reaching its highest since October 2018 at $80.75 earlier in the session. It surged 1.8% on Monday.
U.S. West Texas Intermediate (WTI) crude futures rose $1.06, or 1.4%, to $76.51 a barrel, the highest since July 6. It jumped 2% the previous day.
“Investors remained bullish as supply disruptions in the United States from hurricanes are continuing for longer than expected at a time when demand is picking up due to easing lockdown measures and the wider rollouts of COVID-19 vaccination,” said Chiyoki Chen, chief analyst at Sunward Trading.
Hurricanes Ida and Nicholas, which swept through the U.S. Gulf of Mexico in August and September, damaged platforms, pipelines and processing hubs, shutting most offshore production for weeks.
Also weighing on supply, top African oil exporters Nigeria and Angola will struggle to boost output to their quotas set by the Organization of the Petroleum Exporting Countries (OPEC) until at least next year as underinvestment and nagging maintenance problems continue to hobble output, sources at their respective oil firms warn.
Their battle mirrors that of several other members of the OPEC+ group who curbed production in the past year to support prices when COVID-19 hit demand, but are now failing to ramp up output to meet soaring global fuel needs as economies recover.
The supply issues are occurring as countries ease their COVID-19 movement restrictions, potentially boosting demand.
Japan, the world’s fifth-biggest oil user, plans to lift a coronavirus state of emergency in all regions on Thursday as the number of new cases falls and the strain on the medical system eases, Economy Minister Yasutoshi Nishimura said.
Analysts also say rising prices of spot liquefied natural gas (LNG) and coal may support higher oil prices.
“Oil demand could pick up by an additional 0.5 million barrels per day, or 0.5% of global oil supply, as high gas prices force a switch from gas to oil consumption,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.
He added that energy prices could rally from here if the Northern Hemisphere winter proved colder than expected.
Gold Prices Rise as Soft Dollar Supports Safe-haven Appeal
Gold prices firmed on Monday, propped up by a subdued dollar and slight retreat in the U.S. Treasury yields, with investors gearing up for a week of speeches from U.S. Federal Reserve policymakers for cues on the central bank’s rate hike path.
Spot gold was up 0.5% at $1,759.06 per ounce, as of 0400 GMT, while U.S. gold futures were up 0.4% at $1,759.00.
While the dollar index softened, the benchmark 10-year Treasury yields eased after hitting their highest since early-July. A weaker dollar offered support to gold prices, making bullion cheaper for holders of other currencies.
“Gold is still looking slightly precarious where it is right now, and it’s probably bouncing off key technical level around $1,750,” IG Market analyst Kyle Rodda said.
“Gold remains an yield story and that yield story is very much tied back to the tapering story.”
A slew of Fed officials are due to speak this week including Chairman Jerome Powell, who will testify this week before Congress on the central bank’s policy response to the pandemic.
“There’ll be a lot of questions being put to Fed speakers about what the dot plots implied last week and weather there is higher risk of heightened inflation going forward and that rate hikes could be coming in the first half of 2022,” Rodda added.
A pair of Federal Reserve policymakers said on Friday they felt the U.S. economy is already in good enough shape for the central bank to begin to withdraw support for the economy.
Gold is often considered a hedge against higher inflation, but a Fed rate hike would increase the opportunity cost of holding gold, which pays no interest.
Investors also kept a close watch on developments in debt-laden property giant China Evergrande saga as the firm missed a payment on offshore bonds last week, with further payment due this week.
Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased 0.1% to 993.52 tonnes on Friday from 992.65 tonnes in the prior session.
Silver rose 0.9% to $22.61 per ounce.
Platinum climbed 1.3% to $994.91, while palladium gained 0.7% to $1,985.32.
Brent Crude Oil Near $80 Per Barrel Amid Supply Constraints
Oil prices rose for a fifth straight day on Monday with Brent heading for $80 amid supply concerns as parts of the world sees demand pick up with the easing of pandemic conditions.
Brent crude was up $1.14 or 1.5% at $79.23 a barrel by 0208 GMT, having risen a third consecutive week through Friday. U.S. Oil added $1.11 or 1.5% to $75.09, its highest since July, after rising for a fifth straight week last week.
“Supply tightness continues to draw on inventories across all regions,” ANZ Research said in a note.
Rising gas prices as also helping drive oil higher as the liquid becomes relatively cheaper for power generation, ANZ analysts said in the note.
Caught short by the demand rebound, members of the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have had difficulty raising output as under-investment or maintenance delays persist from the pandemic.
China’s first public sale of state oil reserves has barely acted to cap gains as PetroChina and Hengli Petrochemical bought four cargoes totalling about 4.43 million barrels.
India’s oil imports hit a three-month peak in August, rebounding from nearly one-year lows reached in July, as refiners in the second-biggest importer of crude stocked up in anticipation of higher demand.
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