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Saudi crude exports to remain around 7 million bpd in 2015

JEDDAH — Saudi crude consumption is expected to reach 3 million bpd in the third quarter of this year as domestic demand peaks due to the summer months, according to a report from Jadwa Investment.

“In the last three years, quarter-on-quarter growth in Q3 has averaged 250,000 barrels per day (bpd), and we expect to see a similar quarterly rise in total crude consumption this year as well,” said the Jadwa economists.

Jadwa Investment’s Quarterly Oil Market Update stated that Brent prices were up 13 percent, quarter-on-quarter, in Q2 2015, to $61 per barrel. It said a general improvement in oil demand and slowdown in the rate of growth in US shale oil output combined to push prices up.

“Previously, we expected a pick up in global oil demand in H2 2015 to move global oil balances into a deficit by Q4 2015. Although we still expect a pick-up in global economic activity, year-on-year increases from OPEC and non-OPEC sources, such as Russia, will result in global oil balances remaining in surplus throughout 2015,” added the Jadwa research team.

“Furthermore, since commercial crude stocks are still relatively high, even an increase in forecasted global oil demand or a reduction in supply would not immediately put upward pressure on oil prices. As a result we maintain our full year Brent crude oil forecast to $61 per barrel,” they said.

The report said that preliminary data shows that Saudi crude production was up 6 percent in Q2 2015, year-on-year, at 10.3m bpd. This elevated level of production is due to increasing domestic demand and a desire to hold market share.

Maintaining market share is even more of a priority now for Saudi Arabia than when prices began to fall in the second half 2014.

Global oil markets are more competitive and the Kingdom faces competition from both within OPEC and outside it.

A potential agreement with Iran and the P5+1 paves the way for gradual increases in output in H2 2015.

Iraq is also pumping near record exports. Added to this is the increase in competition from Russia, where exports are up year-on-year.

Related: OPEC: Global market share hits 12-year low

Lower oil prices have put intense fiscal pressure on a number of OPEC and non-OPEC producers, although the risks for Saudi Arabia are lower, due to ample foreign reserves and low debt levels.

“As a result we see limited year-on-year change in Saudi crude exports, which will remain around 7 million bpd in 2015. This combined with rising domestic consumption will see full Saudi production at 9.8 million bpd in 2015, although we do see an upside risk to our forecast, as a result of more intensive competition for market share,” said the researchers.

“We do not view the recent high level meetings between Saudi Arabia and Russia paving the way for any coordinated cut in oil supply from either country,” they said.

The Jadwa report also said than non-OECD oil demand growth continues to be the main component of global oil demand growth. According to OPEC data, around 95 percent of the total Q2 2015 year-on-year global demand growth, of 1.2 million barrels per day (bpd), was supported by non-OECD countries.

Negative oil demand growth persists in the EU and Japan, which has partially canceled out healthy year-on-year rises from the US. Flat demand growth in OECD countries is expected to continue into the third quarter of 2015 and the rest of the year.

Non-OECD demand is forecast to grow by 1.1 mbpd in 2015, year-on-year, with the largest rises coming from China (up 3 percent, year-on-year), India (up 2.9 percent, year-on-year) and the Middle East (up 2.7 percent, year-on-year).

In the US, lower gasoline prices and a pickup in economic activity is spurring oil demand.

As the US benchmark crude West Texas Intermediate (WTI) has fallen, year-on-year, so too have US retail gasoline prices, leading to increased consumption.

Rising US oil demand will not, however, support international oil prices, primarily because ample supply of crude and record commercial crude stocks will limit crude imports, added the report.

Total oil output from OPEC was estimated to be up by 3 percent in Q2 2015, year-on-year, as a result of large increases from Saudi Arabia, Angola, Libya and UAE. Iranian oil output was down, year- on-year.

“We see competition both among OPEC members and with non-OPEC producers for market share resulting in OPEC output levels showing stronger year-on-year growth in Q3 & Q4 2015,” added the Jadwa researchers.

Oil demand was flat in Europe in Q2 2015, year-on-year, and is likely to show only modest growth in Q3 2015.

The region’s long term oil demand trend has been downward due to continuing improvements in fuel economy standards and weak economic growth.

Oil demand is expected to decline in 2015, year-on-year.

Furthermore, the inability of Greece to reach an agreement with its creditors could negatively impact the European economy, which would add downside risks to the region’s current oil demand growth forecasts.

Preliminary Q2 2015 data shows that crude oil imports in Japan were down by 260 tbpd or 7.4 percent, year-on-year, as result of continued fragility in the economy and the increased use of Liquefied Natural Gas (LNG) in the energy mix.

In May 2015, Japan’s Nuclear Regulation Authority (NRA) stated that two reactors had passed their final safety tests before being restarted. The NRA has scheduled one restart in late July 2015, and another in September 2015. “We expect to see a sharper fall in year-on-year Japanese oil demand in Q3 2015 and Q4 2014, as nuclear energy substitutes some crude oil in electricity generation,” said the researchers.

This article was from Arab News, Jeddah, Saudi Arabia and was legally licensed through the NewsCred publisher network.