Saudi GDP may rise 1% if OPEC hikes oil output: CE

Saudi Arabia's gross domestic product (GDP) could increase by around one percent if OPEC members reach a compromise to hike oil production, Capital Economics said in a new report.

"As the cartel’s largest producer (and the one with the greatest spare capacity), Saudi Arabia would benefit the most from any agreed rise in output. Under our central scenario, Saudi oil output would increase by around 350,000 barrels per day (bpd)," the consultancy said.

However, the fall in oil prices over the past month indicates there would be "little further fillip" to the economy from higher oil export revenues, it added.

According to the report, frictions within the OPEC means there’s a real risk that the talks break down, leading to an even sharper rise in output.

"In that situation, countries would act independently to raise output. If Saudi returned output to its level before the OPEC deal came into force, this would directly lift GDP growth by 2.0-2.5 percentage points," the consultancy noted.

Moreover, the boost to the wider Saudi economy would be mitigated if a sharp rise in oil supplies pushed oil prices down. A drop in oil prices of more than $6 per barrel would outweigh the boost to oil export revenues from higher volumes.

The overall boost to GDP growth would be more "modest and possibly even be negative," the report stated.

Meanwhile, Capital Economic estimated OPEC oil supplies to increase by around 600,000 bpd given a compromise is reached and the group redistributes part of Venezuela’s quota among the rest of the group.

OPEC will meet on Friday to decide on the future of its oil output cut agreement that was struck in late-2016.