Saudi industrial output shrinks 23.5% in August as crude collapses

Key Points

1. Saudi industrial production fell 23.5% year-on-year in August, dragged down by a 33.6% drop in oil activity.
2. Crude output sank to 6.238 million barrels a day, the lowest level since 1990, according to OPEC data.
3. September brought a rebound, with exports back near pre-war levels and non-oil activity returning to growth.

The latest:

Saudi industrial production contracted 23.5% year-on-year in August, its sharpest fall since the start of the Iran war, as a collapse in crude output hit mining, quarrying and oil-linked manufacturing. The index had shrunk about 8% in July. The oil sector began recovering in September, with export volumes climbing back toward pre-war levels.

Details:

• The headline number: The industrial production index fell 23.5% year-on-year in August and 14% month-on-month, according to data published Sunday by the General Authority for Statistics. That compares with a contraction of roughly 8% in July, making August the steepest drop recorded since the war began.
• Oil activity: Oil activities, which carry about three quarters of the index’s weight, dropped 33.6% year-on-year. Non-oil activities moved the other way, rising 1.2% annually and 1.4% month-on-month after three consecutive months of contraction, when July had posted a 0.3% decline.
• Crude at a 35-year low: Saudi crude output fell by 1.9 million barrels a day in August to 6.238 million barrels a day, the lowest since 1990, as navigation through the Strait of Hormuz was disrupted by the war, according to OPEC figures.
• Mining and manufacturing: Mining and quarrying activity sank 35.8% year-on-year. Manufacturing fell 8.8%, pulled down by a 24.1% drop in coke and refined petroleum products and a 3.3% decline in chemicals and chemical products.
• September rebound: Saudi crude exports averaged 6.36 million barrels a day across all Arabian Gulf and Red Sea outlets in September, approaching pre-war levels, according to Kpler shipment-tracking data obtained by Asharq Bloomberg from Homayoun Falakshahi, head of crude oil analysis at the firm.
• What drove it: The recovery was supported by a sharp increase in loadings at Ras Tanura on the Arabian Gulf, the world’s largest oil port. Exports through the East-West pipeline resumed at the end of September after the line had been hit in an earlier attack.
• Private sector: Riyad Bank’s purchasing managers’ index rose to 55.3 points in September from 53.8 in August, the highest reading since February and a sixth straight month of improvement, signalling accelerating growth in the non-oil private sector.
• Inside the PMI: Domestic demand led the improvement, with new orders expanding at their fastest pace since February on better market conditions and strong spending. Output growth slowed to a five-month low, after August delivered the strongest expansion in seven months.

Background:

The Strait of Hormuz, the chokepoint for a large share of Gulf crude shipments, was disrupted during the war with Iran. Saudi export infrastructure was also affected, including an attack on the East-West pipeline that carries crude from the Eastern Province to the Red Sea.

Between the lines:

The 23.5% figure measures a supply shock, not a demand collapse. Oil carries three quarters of the index’s weight, so a 33.6% drop there buries the 1.2% recovery in non-oil activity. The September export and PMI readings point the other way, suggesting August marked the trough rather than a trend, provided shipping through the Gulf stays uninterrupted.

What’s next

September industrial production data from the General Authority for Statistics will show whether the export recovery fed through to the index. OPEC monthly output figures and sustained loadings at Ras Tanura are the near-term indicators to track.