October 14, 2014
UAE: falling oil prices won't hurt 2014 GDP
Private economists agree there will be little damage to Gulf's oil exporting economies
Falling oil prices won't hurt the gross domestic product growth of the United Arab Emirates this year, a Ministry of Economy official told reporters on Tuesday.
"Oil accounts for less than 30 per cent of our GDP, so there will be no impact. The UAE economy is now very diversified," said Mohammad Ahmad Bin Abdul Aziz Al Shehhi, undersecretary at the ministry.
"The oil price impact doesn't reflect highly in our GDP." Brent crude oil futures hit a four-year low of $87.74 a barrel on Monday, down more than $25 from their peak in June.
Private economists agree, however, that unless prices decline further and stay at those levels for at least a year, there will be little damage to the Gulf's big oil exporting economies.
Although governments in the region rely heavily on oil income, they have built up huge financial reserves and have very low debt, so they can continue spending on economic growth if needed. Lower oil prices will not translate directly into lower real GDP growth, which will slow only if oil production decreases. Also, most Gulf private sectors have been booming.
A Reuters poll of analysts in September, when the oil price slide was already well underway, found they expected GDP growth in most Gulf Cooperation Council countries to accelerate slightly next year. In the UAE, GDP is projected to grow 4.5 percent in 2015.
UAE: falling oil prices won't hurt 2014 GDP | GulfNews.com
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October 7, 2014
Low oil prices might shelve Gulf mega projects
Arab Gulf states have calculated their budgets based on oil prices ranging between 85 and 100 US dollars per barrel
Current sliding oil prices are not causing many economists to worry yet about the effects in the Arab Gulf region, and they do not perceive it as a prelude to a major oil price crash.
However, many of the economists and oil experts believe the continuous price falls could lead to a review of some mega projects in the region. They do not expect this to affect any ventures that generate job opportunities in the region, where nearly more than half of the population is under 25 years and youth unemployment is considered a major issue.
“Oil prices are not expected to stabilise or go upwards,” Dubai-based economist Nasser Al Saidi told Gulf News. “Most of the reports and forecasts predict that the prices would range between $85 and $95 [per barrel] in the next three years.”
Oil prices started to slide over the past few months. North Sea Brent, a major benchmark, hit $115 dollars a barrel last June, but then fell $95.60 in late September. North American crude benchmark West Texas Intermediate (WTI) reached $104 in June, but is now hovering around $90.
Oman Crude Oil Futures Contract (DME Oman) hit its lowest level since July 2012 in September and is being traded at around $92 per barrel.
Arab Gulf states have calculated their budgets based on oil prices ranging between $85 and $100 per barrel, economists noted.
Yet, many economists believe current low oil prices don’t constitute a major source of concern to the region, home to many of the top oil producers in the world: Saudi Arabia, UAE, Kuwait, Qatar and Iraq. Another major oil producer, Iran, is under international economic sanctions, which limits its oil exports, because of its controversial nuclear programme.
Economists say when oil prices were high in the past years, Arab Gulf countries succeeded in building a sufficient surplus and invested a major portion of the revenues in establishing “an important reserve” to use from when needed.
Economists said the impact of low prices on the region will depend on how low the prices go and for how long do they stay there. They believe the main impact will be on big projects, but not those that generate job opportunities.
“The inclination will be in favour of projects that hire more people, and are less technical in nature, rather than projects that provide less employment,” Abdul Aziz Al Saqr, Jeddah-based chairman of the Gulf Research Centre, told Gulf News.
However, Al Saqr believes it is “premature” to talk about low oil prices, since there is still a demand and there are economies flourishing in parts of the world, including China, which has a considerable weight in defining oil prices.
The recent fall in prices was due to the slow economic growth in China, among other factors, economists and experts said. “China is a major [oil] consumer,” said veteran economic writer Walid Khadouri. “By consuming nearly 9.7 million barrels a day, China consumes nearly 10 per cent of the world’ production,” he added. Current production from the Organisation of Petroleum Exporting Countries (Opec) is around 30 million barrels per day.
Meanwhile, economists totally exclude the possibility of oil prices suffering a crash similar to that of 1986, when the prices fell from $27 to below $10.
“There is no reason to predicate such a thing [crash],” Beirut-based Khadouri said. “If you notice, the slide in oil prices is very slow. It is still within the nineties,” he said.
At the same time, ongoing instability in many Arab countries and inability of many countries to export oil due to political, economic and security reasons will hold the demand for oil from Arab Gulf states, economists said.
Demand continuity coupled with the high cost of rigging shale oil and shale gas would guarantee relatively high price levels, Al Saqr noted.
Low oil prices might shelve Gulf mega projects | GulfNews.com
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October 14, 2014
Drop in oil prices not to affect GDP
Ministry of Economy official confirms drop will not impact overall economy
The drop in oil prices is not expected to affect the UAE’s Gross Domestic Product (GDP) in 2014, according to Mohammed Al Shehhi, undersecretary for economic affairs at the Ministry of Economy.
“The oil price impact doesn’t reflect highly in our GDP because it accounts for less than 30 per cent of GDP. The UAE economy is now very diversified,” Al Shehhi told reporters on Tuesday.
Brent crude oil hit a four-year low on Monday, reaching a price of $87.7 per barrel — down more than $25 from its peak in June.
Saleem Khokhar, head of equities at the National Bank of Abu Dhabi’s asset management group, said that GCC countries, including the UAE, already have significant oil reserves that are enough not to make the decrease in oil prices a problem for the economy.
“When you look at short-term movements, [the drop in prices] is not such a big deal. If you get a long-term sustained drop, and they remain at $80 for argument’s sake, then it will start to have an impact on the medium- to long-term but not immediately,” he told Gulf News.
Khokhar added, “What you have to remember is that the break-even oil price for us is around the $85 to $90 mark. Once you start to go below that, it’s not going to be an immediate effect; you have to have a sustained lower price. The other side of the equation is that there are plenty of foreign assets that are held overseas by many countries, and we’re talking hundreds of billions of dollars.”
He said he did not expect the UAE will need to use its foreign reserve on the short-term.
As for the outlook for oil prices, Khokhar said he expected them to stabilise at around the $90 level.
“You have to remember that the demand for oil is not decreasing; it is increasing overall, particularly from the Asian countries,” he said.
Drop in oil prices not to affect GDP | GulfNews.com
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