RIYADH — In a very competitive global oil market, with ample supply from non-OPEC sources, Saudi Arabia's full year average crude production in 2015 is projected to reach 9.6 mbpd, declining slightly to 9.4 mbpd in 2016, Jadwa Investment, a leading Saudi Arabian private equity house and investment bank headquartered in Riyadh, said in its latest Quarterly Oil Market Review released Wednesday. The continued economic growth and the staggered start-up of the 0.4 mbpd Yasref refinery are expected to push up domestic oil demand in 2015, the reported noted. Saudi Arabian consumption, including both refinery intake and direct crude burn, averaged 2.5 mbpd, year-to-November in 2014, up 25 percent, compared to the same period last year. The report attributed the sharp rise in oil demand to the start-up of the 0.4 mbpd Satorp refinery in Q4 2013, which pushed up refinery intake levels in 2014. Saudi Arabian crude production was down only slightly by 1 percent in Q4 2014, year-on-year, to 9.6 mbpd, taking the 2014 average production to 9.7 mbpd. In 2014 Saudi Arabia witnessed increased competition in two of its key export markets, the US and China. Saudi exports to the US were steady at around 1.4 mbpd in H1 2014 but dropped to just below 1 mbpd in H2 2014. Saudi Arabia continues to face competition in the Asian market with other Middle Eastern suppliers also cutting official selling process (OSPs) to Asia, underling the trend in discounting. According to OPEC data, global demand in Q4 2014 increased by 1.4 mbpd, year-on-year, with 1.3 mbpd of increases from non-OECD countries and a rise in 0.1 mbpd in OECD countries. The report underscored that a $20 per barrel decline in oil prices will bring about and estimated 0.25 percent increase in global GDP over a year, which in turn, will spur demand for oil. Despite prices dropping below $50 per barrel at the beginning of January, the report sees prices recovering to $79 per barrel for 2015 as a whole, supported by stockpiling of crude, the occurrence of contango (under which circumstance the futures price of a commodity is above the expected future spot price) resulting in some surplus leaving the market, a quicker than projected reduction in US shale oil and a pickup in demand due to improvements in global economic growth. Brent prices dropped 25 percent in Q4 2014, to $77 per barrel, quarter-on-quarter, pushing full year 2014 prices to an average of $99.4 per barrel, below the previously forecast price of $102. The report projected that current low oil prices will persist into the first quarter of 2015 as surpluses in global oil balances peak in the absence of cuts from OPEC. Moreover, Jadwa report underlined that there is the possibility that US shale oil supply will not respond to lower prices until after the second half of 2015, resulting in a steeper surplus in global balances than forecast by OPEC. — SG
