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IMF cuts Gulf countries’ growth forecasts on OPEC+ cuts, oil volatility

The OPEC/non-OPEC agreement to cut 1.2 million b/d from the global oil market and prevailing crude price volatility are taking a toll on the economies of the Gulf region, whose growth will more than halve this year from 2018, the International Monetary Fund said Monday.

The gross domestic product of six Gulf countries — Saudi Arabia, Kuwait, the UAE, Qatar, Oman and Bahrain — will grow 0.7% in 2019, down from 2% growth recorded in 2018, the fund said in a report published on Monday. This was further lower from a previous 2019 growth forecast of 2.1%, which IMF projected in April.

However, the region’s GDP growth is expected to rebound to 2.5% in 2020 as the OPEC/non-OPEC agreement is set to end in the first quarter of next year, according to IMF.

Oil GDP — which refers to oil economy of the Gulf region — is forecast to contract 1.4% in 2019 compared to a 2.5% growth in 2018. The oil GDP is expected to grow 1.9% in 2020, the IMF said.

Oil GDP growth in 2020 “reflects a mix of rising oil production in Kuwait and Saudi Arabia, the Jizan refinery becoming fully operational [in Saudi Arabia], and a pickup in gas output in Oman and Qatar,” the fund said.

Saudi Arabia’s economy is projected to grow 0.2% in 2019, compared with 2.4% last year, while the UAE’s economy will expand by 1.6% this year compared with 1.7% in 2018, according to the fund.

Saudi Arabia is forecast to produce 9.75 million b/d of oil this year and 9.85 million b/d in 2020, down from 10.31 million b/d in 2018, the IMF said.

Growth in Saudi Arabia, which suffered its biggest disruption to its oil production on September 14 when two key oil sites were attacked, will not be affected this year or next year by the incident, Jihad Azour, director of the IMF’s Middle East and Central Asia Department, said at a press conference in Dubai on Monday.

Gulf countries — including OPEC members Kuwait, Saudi Arabia and the UAE and non-OPEC member Oman that are implementing production cuts — continue to rely heavily on oil income to fuel their economies and require high oil prices to balance their budgets.

The drop in oil prices at the start of 2016 to less than $30/b prompted Gulf countries to create and join the OPEC/non-OPEC alliance.
BREAKEVEN OIL PRICE

The IMF expects Gulf countries’ breakeven oil prices to remain high in 2019 and 2020 compared to current oil prices, with Brent hovering around $60/b.

Saudi Arabia, the world’s biggest oil exporter, needs a breakeven oil price of $86.5/b to balance its budget in 2019 and $83.6/b in 2020. The UAE needs a price of $70.2/b in 2019 and $70/b in 2020, according to the report.

“As more countries move into diversifying revenues outside oil, this issue of breakeven price will be less relevant as in the past,” Azour said.

Iraq, OPEC’s second-biggest member that is engulfed in political upheaval with protests spreading across the country, has so far not suffered any impact from the unrest, with oil production and fields intact, Azour said.

The IMF said global oil prices are decoupling from geopolitical tensions, with recent incidents in the Middle East causing a temporary and short spike in oil prices. Oil prices are relatively immune from geopolitics due to the rising US shale oil production as well as trade disputes dampening global growth.

“In terms of decoupling, it is very difficult to see the intensity of geopolitical tensions, but in the current context clearly markets are not factoring in as it used to be in the past the risk premium coming from the geopolitical tension in the movement of the oil price,” Azour said.
Source: Platts

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