Economist Expects Oil Price Rising in Second Half

2015-0217 Economist Expects Oil Price Rising in Second Half

Said A. Al-Shaikh, group chief economist, and Sharihan Almanzalawi, economist, at the National Commercial Bank, address a press conference in Jeddah on Sunday.

Oil prices are likely to increase in the second half of 2015 due to lesser investments in shale projects, says a senior economist.

“Additional supplies of oil in the market will be gradually removed, which will contribute to higher oil prices in the second half of this year,” Said A. Al-Shaikh, group chief economist at the National Commercial Bank (NCB), said.

He was speaking on the sidelines of a press conference in Jeddah where Dun & Bradstreet South Asia Middle East Ltd. (D&B) in association with the NCB released the D&B Business Optimism Index (BOI) survey for Saudi Arabia for Q1, 2015.

The BOI survey highlights mixed trends in the optimism levels of both the hydrocarbon and non-hydrocarbon sectors in Saudi Arabia.

Oil prices are low now but approaching $60 a barrel level, Al-Shaikh pointed out.

“The average oil prices for the year will be higher than $62 a barrel, which was assumed in the budget. We are expecting oil price to average between $72 and $75 a barrel,” he said.

“If that were the case, the budget deficit will come close to SR190 billion or SR200 billion higher than the announced deficit, which is SR145 billion due to additional spending but it will be offset slightly by expected rise in oil prices in the second half of 2015.”

He added: “According to the NCB projections, the Kingdom’s economy is expected to grow by 2.5 percent in 2015. Nonoil economy will be growing close to 5 percent to 5.5 percent, which will offset the negative growth coming from oil.”

In the preliminary budget that was unveiled late in December, the Ministry of Finance announced an expansionary fiscal policy with a budget of SR860 billion — SR5 billion more than last year’s budget.

The deficit was estimated at SR145 billion for the 2015 budget. However, some of the new royal decrees involved additional spending like the two-month bonus salaries for the government employees, allocation of SR20 billion for other developments, and also other additional allocations for charities.

They are estimated to add to around SR100 billion-SR110 billion above what was announced in the budget. This would mean that the actual spending for 2015 will surpass the preliminary budget of SR860 billion.

NCB estimates spending to reach SR970 billion to SR980 billion, very close to the SR1 trillion level with less than the 2014 spending amounting to SR 1.1 trillion. But certainly it is more than what was announced in the initial budget of SR860 billion.

The oil and gas sector’s outlook for Q1, 2015 has declined sharply compared to the previous quarter and the same quarter last year.

The composite BOI has declined from 34 in Q4, 2014 and 50 in Q1, 2014 to 16 for Q1, 2015.

Expectations for selling prices are weaker; the BOI has slipped from 18 in Q4, 2014 to 8 for Q1, 2015 as 15 percent of the participants foresee a decrease due to the sharp decline in international oil prices.

Firms in the oil and gas sector have indicated a much stronger business environment for Q1, 2015 compared to the previous quarter with 65 percent of the respondents expecting no hindrances to their operations during Q1 2015 compared to 28 percent in Q4, 2014.

Declining oil prices are expected to impact 13 percent of the firms, while competition will be an impediment to 10 percent and eight percent that are concerned about the shortage of skilled labor.

The BOI survey for Q1, 2015 reveals that the non-hydrocarbon sector has maintained the same level of optimism as in the previous quarter, with the composite BOI at 48 points in Q1, 2015 compared to 47 both in the last quarter and this quarter last year.

The current survey shows that both SMEs and large companies share a similar outlook for the first quarter of 2015 with composite BOIs of 47 and 48 respectively. Large companies are more optimistic about getting new orders and hiring, while SMEs’ expectations are higher for selling prices and net profits.

“Some of the SMEs who were relying mostly on illegal workers have been affected by the Ministry of Labor’s crackdown on illegal workers but the gain to overall economy from regulating the labor force and ensuring all the labor force, especially non-Saudis to be legalized, will be something beneficial to the Saudi economy,” Al-Shaikh said.

“Whenever labor policy is introduced, it will have to be based on actual size of the labor force and not on the basis of its guess estimates. Given the size of the illegal labor force that we used to have, it was distortionary to the economy and also making it difficult to introduce the right labor policies that would improve the conditions of the labor force,” Al-Shaikh added.

Commenting on the findings of the survey, Sharihan Almanzalawi, economist at the NCB, said: “While Saudi Arabia’s hydrocarbon sector business optimism index (BOI) is weighed sharply to 16 points, attributed to the free fall of oil prices, the Kingdom’s non-hydrocarbon sector BOI maintains its optimism level, registering 48 points in Q1 2015.”

Almanzalawi said: “Apparently, the private sector expects that the government will continue to follow an expansionary fiscal policy even with declining oil prices by tapping into its huge foreign exchange reserves to finance any budget deficits. This, however, underpins the business confidence, as 59 percent of non-hydrocarbon sector firms participating in the survey do not foresee any obstacles to their business operations – only 4 percent above its level in the Q4, 2014.”

Nonetheless, she said: “Investment outlook moderated with 47 percent of non-hydrocarbon firms, indicating that it will invest in expansion activities in Q1, 2015, slightly less than 53 percent registered in Q4, 2014.”


Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker