By Andy Sambidge
New survey also shows confidence drops amid companies in non-oil markets.
Business optimism in Saudi Arabia's hydrocarbon sector for the third quarter of 2010 has improved significantly compared to the previous quarter, according to a new survey.
An improvement in oil selling prices drove the improvement in sentiment, according to the Business Optimism Index published by The National Commercial Bank, in association with Dun and Bradstreet South Asia Middle East.
By contrast, the index for the non-hydrocarbon sector dropped by 12 points weighed by a drop in sales volume and selling price.
Only the manufacturing sector expected demand to stay robust as the index for both sales volume and new orders remained relatively unchanged
The survey was conducted in June, at a time when the global economy was having a déjà vu moment with regard to the sovereign debt default concerns of Greece which now many believe could possibly have a contagion effect on other peripheral EU economies as well.
Oil prices witnessed yet another quarter of wide fluctuations, as prices touched highs of $84 on growing confidence that global economic recovery would stay robust, but then corrected by a significant 20 percent.
The improvement in optimism among hydrocarbon company chiefs suggests that the oil prices fell too sharply last quarter and many respondents believe that the commodity is oversold in the international commodities markets and a trend reversal could be expected in the third quarter.
The survey showed that the Saudi non hydrocarbon sector is expecting a slight decline in demand levels in comparison to the previous quarter.
Factors impacting business remains fairly stable in Q3 as compared to the previous quarter with raw material costs remaining the most important business concern.
Availability of finance also continues to be an important challenge with almost a third of respondents expecting it to impact their business in the third quarter.
Meanwhile, 40 percent of firms plan to invest in business expansion.
Pawan Bindal, associate director of Dun and Bradstreet South Asia Middle East, said: "The recent sovereign debt issues in Europe and the typical slowdown in business activity in the kingdom over the summer months has depressed non-hydrocarbon business optimism for Q3.
"However, the hydrocarbon sector business optimism has increased supported by a strong oil price expectation and will facilitate the government's commitment to capital spending thus stimulating the Saudi economy."