Saudi Aramco’s Ras Tanura oil refinery
Saudi Aramco’s Ras Tanura oil refinery. Moody’s had revised its estimate of real gross domestic product growth of 0.3 per cent Image Credit: Reuters

Dubai: Saudi Arabia which faced attacks on its oil production facilities recently is expected face a drastic slowdown in economic growth largely driven by decline in the volume of oil production, according to rating agency Moody’s.

Moody’s had revised its estimate of real gross domestic product growth of 0.3 per cent compared to the earlier estimate of 1.5 per cent in the beginning of this year.

The rating agency attributes the slowdown to loss of government revenues due to lower oil production due to over-compliance to the Opec+ quota rather than the potential production loss from attacks of Aramco’s facilities at Abqaib and Khurais.

“Our estimates show Saudi Arabia’s oil output is nearly 5 per cent below its Opec+ quota. The Kingdom is producing much less oil than it can under the agreed production cuts to stabilise the market,” said Alexander Perjessy, Senior Analyst at Moody’s.

Moody’s do not expect the recent attacks on Aramco’s facilities will a long-term impact on the economy. However, subdued oil prices and continuing compliance to supply quotas will limit the economic growth prospects in the short to medium term.

“Oil prices are likely to remain moderate in the medium term, fluctuating in the range of $50 to $70 a barrel. In addition, we expect Opec+ to continue with production cuts beyond March 2020 in the context of weak global growth and slowing oil demand,” said Perjessy.

Moody’s latest growth estimates is significantly below the latest projections by the International Monetary Fund (IMF). In its latest estimates the IMF had projected GDP growth of 1.9 per cent as real oil GDP growth slows to 0.7 per cent with the implementation of the Opec+ agreement.

Despite the lowered growth outlook, Moody’s expect the Kingdom’s economy to remain resilient to geopolitical risks and lower oil prices.

“Geopolitical risks will remain the key source of event risks for Saudi Arabia and the region. However, we do not anticipate an armed conflict in the region. The stable credit outlook on Saudi Arabia’s ‘A1’ rating assumes continuation of fiscal reforms and economic diversification,” said Perjessy.

According to Moody’s risks to Saudi’s credit profile is substantially mitigated by huge oil reserves supported by more than $550 billion in financial reserves of which is more than one-third is held as liquid assets by Saudi Arabian Monetary Authority (SAMA).

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Limited impact on Aramco

Dubai: The recent attacks on Aramco’s facilities at Abqaib and Khurais will have only limited very short term impact on oil output and does not pose any threat to its credit outlook.

“According to the available information, the company is likely to face 15 days’ production loss, which is largely mitigated by ample inventory it holds. While the short term impact on production is unlikely to impact global supplies, the company can replenish reserve inventories within a short period,” said Alexander Perjessy, Senior Analyst at Moody’s.