Abu Dhabi: The average price of crude oil is forecast at $105 per barrel in 2013, $101 per barrel in 2014 and $100 per barrel in 2015, according to Giyas Gokkent, chief economist at the National Bank of Abu Dhabi (NBAD).
“Average oil price was $112 per barrel in 2012. The base case is for oil prices to soften mildly, but remain close to $100 per barrel through 2018. Thereafter, prices rise by a few dollars each year in this scenario,” Gokkent told Gulf News in reply to e-mailed questions.
He said the fiscal breakeven oil price for Gulf Cooperation Council (GCC) states is at $76 per barrel,
“GCC fiscal breakeven has risen from US$ 26 per barrel in 2006 and so there is a degree of vulnerability (if global oil prices begin to fall). Bahrain is the weakest link with a fiscal breakeven level of about $122 per barrel. However, Bahrain’s budgetary expenditures are less than 2 per cent of the GCC aggregate and so, Bahrain’s fiscal breakeven level is not representative of the GCC and is only material for developments in Bahrain,” said Gokkent.
He said the Organisation of Petroleum Exporting Countries (Opec) have suggested $100 per barrel is the comfort level for oil prices.
“Softening in oil prices will obviously affect oil exporters’ trade surpluses and budget balances adversely. Nevertheless, oil prices remain high by historical standards (2012 average oil price was a record) and so regional economies will continue to perform well,” Gokkent added.
This week, however, Kuwait struck a cautionary note. Kuwait’s prime minister called the Arab-Gulf state’s welfare system unsustainable and said the major oil producer needs to cut spending and the consumption of its natural resources. Sheikh Jaber Al Mubarak AlSabah said a “transformation” was needed to avoid future problems.
The Kuwaiti government’s four-year programme says that if spending continues to rise at the current rate, Kuwait will have a real budget deficit by 2021, something which “threatens national and social security and the stability of the country”.
Gokkent said there is significant uncertainty regarding long term oil prices. “A high price scenario sees oil price at $150 per barrel in 2018, while a low price scenario puts it at about $70 per barrel. The risk is to the downside given the rise in oil supply.”
“Opec and, in particular, Saudi Arabia would curtail output should oil prices weaken sharply and, in the process, provide a floor. There would also be supportive adjustment given some sources of energy would become uneconomic to exploit in the event of a decline at some point and, again, provide a floor for oil markets. A softening in oil prices is our current base case, but a sharp fall is not envisaged. Opec output is expected to stagnate through 2016, while non-Opec liquid fuels supply is forecast to increase,” said Gokkent.
He said Saudi Arabia has acted and is likely to continue acting as the swing producer compensating for shortfalls in periods of supply disruption elsewhere and cutting back when necessary to support oil prices. However, Gokkent noted that looking ahead, Saudi Arabia is expected to lose market share in the oil market as non-Opec and Iraqi supply rise.
“In the event that Iranian output recovers, this would put additional pressure. UAE and Kuwait have raised and maintained output at record levels. Output growth in these countries is expected to be modest at best, given the outlook,” he said.