Dubai: 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.
