Prospects bleak for Saudi oil firms amid lower prices

Saudi Arabian oil and gas firms face bleak prospects for the first quarter of the year due to lower oil prices and falling demand, according to a survey that also forecast a moderation in optimism levels.

Dun & Bradstreet South Asia Middle East Ltd (D&B) in association with the National Commercial Bank released the D&B Business Optimism Index (BOI) survey for Saudi Arabia for first quarter of 2016.

Sharihan Almanzalwai, Associated Economist of the National Commercial Bank, said the weakening of the global economy, largely influenced by the slowdown in the Chinese economy contributed to lower oil demand, which at a time of increased supply, led to the sharp fall in oil prices to below $40 a barrel for the first time since 2009.

These developments impacted the economies of the oil countries that rely on oil revenues to support their budgets, and Saudi Arabia was one of those countries most affected. This impacted the hydrocarbon sector, as its BOI declined to -12 points for Q1, 2016 compared to -4 in Q4, 2015.

The outlook for the business environment is less optimistic in the first quarter of 2016 as 53 per cent of the participants cited no negative factors compared to 49 per cent in Q4, 2015, while hydrocarbon firms have improved their expectations in terms of business expansion plans as 33 per cent of the sector's respondents will invest in expansionary activities compared to 30 per cent in the previous quarter.

The continuation of lower oil prices will affect financial revenues of the government which is expected to reduce spending this year compared to the level witnessed last year. Accordingly, the BOI for the non-hydrocarbon sector has retreated from 33 points in Q4, 2015 to 28 points for 2016 Q1.

The outlook for the business are slightly rather weaker in the Q1, 2016, as 52 per cent of the companies expect no negative factors to impact their business operations in Q1, 2016 compared to 54 per cent in Q4, 2015, the survey said.

While Saudi Arabia's businesses are modestly more optimistic with regard to investment in business expansion, as 44 per cent of the firms intend to expand in the current quarter versus 42 per cent in the previous quarter, it said.

The survey for the first quarter of 2016 reveals that Saudi Arabia's oil and gas firms are bleak in their outlook with the composite BOI falling further in the negative territory to record a low of -12 compared to -4 in Q4, 2015.

35 per cent of the firms have indicated that they do not expect any factors to impact their operations during Q1, 2016 compared to 49 per cent in the previous quarter.

The top concerns of this sector include the impact of oil prices (30 per cent), competition (21 per cent) and government rules & regulations (7 per cent). Oil and gas firms are bullish with respect to investments; 33 per cent of the firms indicated expansion plans in Q1, 2016 compared to 30 per cent in the previous quarter.