Boston, MA -- (SBWIRE) -- 01/08/2014 -- We are holding on to our forecast for oil production to register a year-on-year decline in 2013, with production falling around -1.2% from last year to average just over 11.5mn barrels per day (b/d) and staying largely flat into 2014. Rising production elsewhere and need to support prices supports our view that production will be largely flat on 2013 despite growing demand for crude to feed a rising downstream sector. Yet given Saudi Arabia's pivotal role in balancing the world oil market, there are both upside and downside risks to this view in line with the state of the oil market globally, which for now is trending toward surplus notwithstanding the risk of continued supply disruptions. The outlook for gas remains tight, despite ambitious plans to tap unconventional resources; we believe that rising consumption and faltering supplies may yet see the Kingdom seriously consider imports.

We highlight the following trends and developments in Saudi Arabia's oil & gas sector:

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- We are holding on to our forecast for oil production to register a year-on-year decline in 2013, with production falling around -1.2% from last year to average just over 11.5mn barrels per day (b/d). We are pricing in a gradual recovery from 2014 onwards, but given Saudi Arabia's pivotal role in balancing the world oil market, there are both upside and downside risks to this view in line with the state of the oil market globally, which for now is trending toward surplus notwithstanding the risk of unforeseen disruptions.
- With civil unrest in Libya sending output low as 400,000b/d during August (from 1.4mn b/d in May), volatile production in Iraq, and frequent declarations of force majeure in Nigeria, the market is increasingly watching Saudi numbers, counting on Riyadh to take on its traditional role of ensuring markets are well supplied in the face of disruptions elsewhere. OPEC production has largely been flat on the year, leaving limited spare capacity as supplies are disrupted elsewhere. With sanctions firmly in place on Iran despite a initial deal reach in Geneva during late November negotiations, Saudi Arabia is largely alone in retaining the spare capacity to quickly bring online any output to counter any supply disruptions.
- We caution that even to our conservative figures there are downside risks given Saudi Arabia's role as a swinger producer. In response to global events such as general perception of a market in surplus or the material return of Iranian crude to market, we could well see Saudi Arabia make a more pronounced reduction in output and maintain this level. With Saudi ramping up its refining capacity, it could offset some loss of export capacity with the higher prices fetched for refined products. Moreover progress toward bringing online more supplies of gas could free up crude previously directed toward power generation.

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