S&P affirms Saudi Arabia's rating on faster attack recovery and economic momentum

The kingdom said it restored 41% of lost production three days after the attacks

Workers are seen at the damaged site of Saudi Aramco oil facility in Abqaiq. Reuters

S&P Global Ratings affirmed Saudi Arabia’s credit ranking as the kingdom recovers more quickly than expected from an attack on its oil installations that took about half of its crude production capacity offline.

The outlook for the kingdom is stable, the ratings agency said.

S&P affirmed its "A-/A-2' long- and short-term sovereign credit ratings saying it expects Saudi Arabia's oil production to "rebound quickly following the September 14 attacks on two oil production facilities ... to redouble its efforts to secure key oil production and processing facilities, increase storage capacity, and enhance attempts to develop Red Sea export routes that would help avoid the volatile Arabian Gulf”.

As Opec’s top oil exporter, Saudi Arabia accounts for 12 per cent of global crude supply. The kingdom suffered its biggest outage on September 14 after Saudi Aramco facilities were attacked, disrupting 5.7 million barrels per day of the country’s output. The lost production, equivalent to 5 per cent of global production, superseded supply shocks during the 1979 Iranian revolution and Saddam Hussein's 1990 invasion of Kuwait, according to the International Energy Agency.

The kingdom managed to restore 41 per cent of lost production, Saudi Energy Minister Prince Abdulaziz bin Salman said in Jeddah, three days after the attacks, adding that full production is expected to restored by the end of September.

A 7 million bpd capacity plant at Abqaiq, a key oil stabilisation centre in the country, was targeted in the attacks. It is the largest oil installation of its kind in the world, which sweetens crude sourced from some of the biggest oilfields in Saudi Arabia’s Eastern Province. The plant currently operates at a 2 million bpd capacity, from pre-attack levels of 4.9 million bpd, Aramco chief executive Amin Nasser said last week.

The strikes on Saudi Arabia’s large Khurais oilfield took about 2 billion cubic feet per day of associated gas offline, along with 1.3 billion cubic feet of dry gas, 500 million cubic feet of ethane and about half a million barrels of gas liquids.

State-run Aramco has fulfilled its crude delivery commitments, as it reduced domestic refinery runs by 1 million bpd to 1.9 million bpd. Supply to domestic petrochemical producers is returning to normal levels. Advance Petrochemical and National Petrochemical Company, two Saudi producers, said on Sunday they have started receiving their full quota of feedstock from Aramco.

In the week following the supply disruption, Finance Minister Mohammed Al Jadaan said the attacks had "zero" impact on the kingdom's revenue or its economy, and the country's non-oil economy is on track to expand 2.9 per cent this year.

Although the kingdom relies heavily on the sale of hydrocarbons for revenue, S&P said its stable outlook of Saudi Arabia reflects its view the country will maintain moderate economic growth and retain strong government and external balance sheets over the next two years, despite a fiscal deficit.

The economic growth forecast for the country, however, continues to rely on assumptions of Opec production targets and crude prices, S&P said. It expects real GDP to contract by about 0.4 per cent this year, driven mainly by a fall in oil production tied to Opec’s deal with non-deal Opec countries to cut crude levels to support prices.

Moody’s Investors Service last week also reduced its overall GDP growth estimate for the kingdom to 0.3 per cent this year from an earlier 1.5 per cent projection due to what it said is the kingdom’s over-compliance of crude production cuts under its Opec+ oil output pact.

"The quantity of oil produced is a big factor in Saudi Arabia's GDP ….this affects the growth, so the right way, the healthy way to look at the Saudi GDP is to look at non-oil private sector [GDP], which is growing in the country as domestic consumption is growing," Mazen Al Sudairi, the head of research at Al Rajhi Capital in Saudi Arabia said.

"This is the most important thing to ask," he said, adding that Al Rajhi's expectations of non-oil GDP growth this year are in line with the government estimates. "We find it to be very reasonable," he said.

S&P said it expects the overall GDP to “rebound to 2.3 per cent on average over 2020-22”.

“There are some positive signs in high-frequency private-sector data and we expect moderate credit growth,” the ratings agency said.