Gulf breakeven oil prices to fall on non-oil revenue uptick, austerity measures: IIF
The breakeven oil prices for most Gulf countries will decline in 2021 — thanks to an uptick in non-oil revenue and austerity measures — as the region will benefit from a 70% surge in oil windfall due to the crude price surge, the Institute of International Finance said March 18.
“With the sizable improvement in nonhydrocarbon revenue and restrained public spending, the fiscal breakeven oil prices will decline, particularly in Saudi Arabia and Oman,” IIF said in a report.
Saudi Arabia, the world’s biggest oil exporter, will see its breakeven oil price that is needed to balance the fiscal budget drop to $66/b in 2021 from $76/b in 2020, while the UAE’s breakeven will decline to $67/b from $70/b. Kuwait is the only Gulf country that will see its breakeven oil price rise by $1 to $56/b in 2021 from 2020. In 2021, Bahrain will need the highest breakeven oil price of $86/b and Qatar the lowest at $51/b.
IIF is projecting Brent oil prices will average $60/b in 2021, 40% higher than in 2020, which will help increase Gulf hydrocarbon income to $340 billion in 2021, compared with $200 billion in 2020.
Dated Brent closed 0.76% lower to $67.45/b on March 17, but was still at the highest level since Jan. 8, 2020. Dated Brent is up by more than a third since the start of 2021 on the back of OPEC+ cuts, the rollout of vaccines and cold snaps in some parts of the world.
Saudi Arabia, the UAE, Kuwait and Oman are members of the OPEC+ alliance, which has been curbing production since May last year to help balance the oil market and prop up crude prices.
IIF is projecting the Gulf region will grow 2.5% in 2021 compared with a 4.9% contraction in 2020.
“The ongoing recovery is projected to accelerate towards the middle of 2021 as the second wave of the pandemic recedes, COVID-19 vaccines become widely available, and oil production cuts are tapered in line with the OPEC+ agreement,” said the Washington-based institute.
Saudi Arabia’s economy, the biggest in the Gulf, will grow 2.4% in 2021 after shrinking 4.2% in 2020.
The UAE, OPEC’s third largest producer and the second biggest Arab economy, will expand 2.6% in 2021 after contracting 5.6% in 2020.
Bahrain will enjoy the highest economic growth of 3.4% in 2021, while Oman will have the lowest of 1.4%.
Qatar, one of the world’s top producers of liquefied natural gas, will see its economy grow 3.3% in 2021, compared with a 3.1% contraction in 2020, which was the lowest among the six Gulf countries.
Qatar’s economy “was not impacted by the OPEC+ agreement as more than 70% of the hydrocarbon exports are in the form of natural gas and Qatar is not part of the OPEC+ oil production cut,” IIF said. “The strong rebound in the economy, 3.3% growth for 2021, will be supported by increasing gas production and restoration of trade and financial flows with Saudi Arabia, the UAE and Bahrain.”
Qatar is planning to increase its domestic LNG production by 64% by 2024 via the two-phase North Field expansion project, which will take the Gulf state’s capacity from 77 million mt/year to 126 million mt/year by 2027.
Saudi Arabia, the UAE and Bahrain ended in 2021 a three-year economic blockade imposed on Qatar, which is expected to help boost economic activity among the countries.
In Oman “projected cut in spending, combined with the continued increase in natural gas and condensates production, will lower the fiscal breakeven oil price from $76/b in 2020 to $68/b in 2021,” IIF said.