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.”
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
Nigeria Takes Bold Step to Energize Oil Sector: Plans to Revoke Dormant Exploration Leases
The Nigerian Upstream Petroleum and Regulatory Commission (NUPRC) has announced that the Federal Government is considering revoking inactive oil exploration leases granted to companies unable to conduct exploration activities.
Gbenga Komolafe, CEO of NUPRC, conveyed that only companies demonstrating robust technical and financial capabilities would retain their leases under the guidelines of the Petroleum Industry Act (PIA).
“Based on PIA, the commission is focused on delivering value for the nation, so only firms that are technically and financially viable will keep their leases,” affirmed Komolafe in a statement to Reuters.
He outlined that the commission plans to review existing leases, and the allocation of new leases will be contingent upon specific terms and conditions.
Current data from NUPRC reveals that over 60% of prospecting licenses, comprising 53 exploration leases issued since 2003, have expired. Of these, 33 licenses, including four entangled in contract disputes, have not been renewed.
While automatic revocation has not been exercised, the regulator signals a departure from allowing companies to indefinitely retain leases without meaningful exploration activities.
The enactment of the PIA in 2021 empowers the regulator to assess the technical and financial capabilities of companies holding oil exploration leases.
The Nigerian oil and gas sector has faced challenges, witnessing dwindling investments as major players exit onshore and shallow water assets due to security concerns, infrastructure sabotage, and legal disputes in the Niger Delta.
The proposed move aims to incentivize active exploration, addressing the sector’s stagnation and fostering renewed investor confidence.
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