Saudi Arabia: Oil output falls in May
Latest reading: Brent crude oil prices averaged USD 103.84 per barrel in May, up 1.0% from April. On 29 May, the commodity traded at USD 92.03 per barrel, down 19.4% from 30 April.
Turning to production, Saudi oil output was 6.91 million barrels per day (mbpd) in May, decreasing 24.7% year on year (April: 6.76 mbpd; down 25.0% yoy). This marked the second-lowest oil production level since the 1991 Gulf War and the second-sharpest year-on-year contraction in five years, following last month’s record decline. Since the closure of the Strait of Hormuz, Saudi Arabia has cut production by more than two-fifths from its pre-war level, primarily by shutting down the Safaniya and Zuluf offshore fields.
Outlook: Our panelists are currently updating their oil production forecasts for Saudi Arabia following the recent ceasefire agreement between the U.S. and Iran. Over the past few months, the regional conflict has weakened the Kingdom’s outlook for oil production, which is projected to fall this year from last. Still, the country’s oil sector has remained better insulated from the conflict than most other Gulf states. By rerouting exports through the Red Sea port of Yanbu, the Kingdom has partially offset losses from the Hormuz blockade while also benefiting from historically high oil prices.
Panelist insight: On the ceasefire agreement and its effects on Saudi Arabia’s oil production outlook, EIU analysts commented:
“Although the agreement remains vague and has attracted criticism, we expect it to hold, given the strong mutual interest of both US and Iran in ending the conflict and restoring maritime trade. Assuming that the strait remains open, the reconfiguration of Saudi Arabia’s oil supply chain is likely to proceed gradually over several weeks or even months rather than through an immediate return to pre-conflict logistics. Significant short-term uncertainty will nonetheless persist.”