Saudi Arabia's economy to rebound in 2021 on oil price rally: S&P Global Ratings

Saudi Arabia's economy, the Arab world's largest, will return to growth in 2021, thanks to higher oil prices, continued relaxation of OPEC+ cuts and the rollout of COVID-19 vaccines, S&P Global Ratings said in a Sept. 27 report.

S&P Global Ratings, which has affirmed the country's A-/Stable/A-2 sovereign rating, said the monthly relaxation of OPEC+ quotas will prop up Saudi Arabia's oil sector and economy in 2021 and 2022. Saudi Arabi's economy will swing to growth in 2021 after shrinking 4.1% in 2020, the worst contraction since 1987. The growth rate in 2021-2024 will average 2.4%, S&P Global Ratings said.

"In 2021, the country's economy has begun to rebound, as the global economy emerges from the pandemic and oil prices have improved, although these trends remain partially counterbalanced by Saudi Arabia and OPEC constraining oil production," S&P Global Ratings said in the report.

S&P Global Ratings assumes an average ICE Brent price of $65/b for 2021, falling to $60/b in 2022, and $55/b from 2023.

Saudi Arabia is part of the 23-member OPEC+ alliance which started relaxing cuts by 400,000 b/d each month from August until December this year. OPEC+ ministers, who are convening monthly, are set to meet virtually on Oct. 4.

Rising oil output

As OPEC+ continues to ease cuts, Saudi Arabia is forecast to pump on average 9 million b/d in 2021, 9.7 million b/d in 2022 and more than 10 million b/d in 2023, thanks to the continued tapering of oil curbs, according to S&P Global Ratings. The world's biggest oil exporter has a production capacity of 12 million b/d.

Saudi Arabia's estimated 2 million b/d spare capacity gives it power, particularly as the leader of OPEC.

"Alongside its large production capacity and its leadership role in the global OPEC and oil markets, this [spare capacity] provides it with some supply-side pricing power and fiscal flexibility that is not available to other oil producers, helping its fiscal and growth strategies," S&P Global Ratings said.

Saudi Arabia will also continue to shift its oil sector focus from upstream to downstream operations, according to S&P Global Ratings.

"The authorities will also keep on maintaining efforts to rebalance the hydrocarbon industry away from its reliance on upstream crude production and export, toward natural gas and value-added midstream hydrocarbon activities such as refining, petrochemicals, chemicals, and minerals," it said. "Several large hydrocarbon projects will continue to ramp up production in 2021-2024."