Gulf must brace for long-term low oil price

Oman crude oil exported from the Middle East arrives at Zhoushan port in China. (Getty Images)
Updated 12 December 2018

Gulf must brace for long-term low oil price

  • Arab youth unemployment running at 30 percent
  • Trade wars expected to have regional fallout

DUBAI: Gulf states which depend heavily on energy exports for most of their revenues should brace for a long period of low oil prices and subdued economic growth, experts warned on Wednesday.
Signs of an "economic war" between the US and China, the world's largest economies, and an expected global economic slowdown starting next year will dampen demand for oil, the experts told a conference in Dubai.
"Oil prices will remain low for a long period," former Lebanese minister of economy and trade Nasser Saidi told the one-day Arab Strategy Forum.
A cooling of the global economy will reduce demand for oil, which coupled with rising competition from renewable energy sources and shale crude will lead to low oil prices, said Saidi, who is now a consultant.
"This will negatively impact growth in the whole (Arab) region ... The whole area will face a financial and economic crisis," he said.
The six member nations of the Gulf Cooperation Council (GCC) earn more than 80 percent of their revenues from energy.
The GCC states -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates -- have lost hundreds of billions of dollars in oil revenues since crude prices crashed in mid-2014.
Oil prices later rebounded after OPEC and non-OPEC producers reduced their production.
But they slid again when producers boosted output earlier this year to compensate for expected losses from Iran because of the re-imposition of US sanctions.
Oil prices have lost more than a quarter of their value compared with a four-year peak over $85 a barrel seen in October, with benchmark Brent crude trading at around $61 a barrel in London on Wednesday.
World Bank senior vice president Mahmoud Mohieldin warned that economic growth in the GCC region was still dependent on oil price movements.
"Now, we are at a time of uncertainty ... Growth in Gulf states is forecast at three percent next year ... but this could be revised," following the drop in oil prices, Mohieldin said.
He said that the unemployment rate among Arab youths is 30 percent and higher among females, adding that growth is not producing enough jobs.
OPEC and non-OPEC producers decided last week to cut production by 1.2 million barrels a day from January to shore up prices, which some analysts warned would hit economic growth.
"We think that the OPEC deal will have an overall negative impact on GDP (gross domestic product) growth in the Gulf over the coming quarters," London-based consultancy firm Capital Economics said last week.

WEEKLY ENERGY RECAP: Traders keep their heads amid increased risk to tankers

Updated 41 min 25 sec ago

WEEKLY ENERGY RECAP: Traders keep their heads amid increased risk to tankers

  • Oil seems to be steady in the $60 per barrel range for Brent even if the risks for tankers in the Arabian Gulf have gone up

RIYADH: Counterintuitively, the latest attacks on tankers in the Gulf of Oman which ratcheted up regional tensions, did not have the same effect on the oil price, which ended the week lower. 

Brent crude and WTI prices deteriorated to $62.01 and $52.51 per barrel respectively. In the past even an isolated tanker hijacking or fire was enough to send the price rocketing — but these days traders appear more fixated on where global trade winds are blowing.

Oil seems to be steady in the $60 per barrel range for Brent even if the Arabian Gulf is now considered as one of the riskiest areas for oil tankers since the Iraq War. 

It is worth remembering that the Arabian Gulf is where more than a third of the world’s hydrocarbons are transported — a fact reflected in the rising premiums for tanker insurance in the region.

Yet while insurers seem to have responded to the increased geopolitical risks, oil traders are more sanguine. A slowing global economy, persistent trade war worries and rising shale output have combined to cap price increases.

The latest monthly reports from both OPEC and the IEA also cut their demand forecasts, adding to bearish sentiment.

OPEC, in its report, cited weaker growth in global oil demand amid escalated and ongoing global trade tensions, as a key factor in the downward adjustments to the outlook for global oil demand.

  • Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq