Oil prices lift GCC but risks remain


02/04/2012 10:26 AST

Oil prices in the first quarter advanced further from last year's elevated levels, providing a lift for GCC economies but a potential threat to the global economic recovery.

The spectre of Iran loomed large after the United States and the European Union burdened Opec's second-largest producer with a new round of sanctions designed to stifle oil exports.

"The market is going to be subject to an ongoing level of uncertainty throughout 2012, because of what is happening in the Middle East," said David Fyfe, the oil & industry markets division head at the International Energy Agency.

Reduced flows from a string of other producers, most notably South Sudan and Libya, exacerbated market jitters. Brent, the benchmark for crude sold in Europe, rose 14 per cent over the quarter to close at $122.9 a barrel on March 30. Oil traded on the New York Mercantile Exchange gained more than 4 per cent in the first three months of the year.

"Oil prices cut both ways. You get a fillip for local growth but a risk for global growth," said Tim Fox, the chief economist at Emirates NBD. "But ultimately the risk to global growth could damage regional prospects if prices fall back because of a slowing global economy."

Rising oil prices have helped underpin expansionary spending by many GCC states, pushing up breakeven prices - the level at which governments can balance their budgets. Iran's refusal to abandon its controversial nuclear programme had started moving prices north last year, as the Islamic Republic responded to western pressure with threats to block the Strait of Hormuz.

The US has pledged to penalise buyers of Iranian oil by excluding them from its financial system, and Washington has exerted intense diplomatic pressure to ensure that key Iranian customers such as Japan and South Korea reduce their imports. The EU will stop all imports from Iran by July, while instructing its tanker insurance industry to stop covering vessels carrying Iranian cargo.

The Swiss consultancy Petrologistics, which analyses tanker activity, last month estimated exports from Iran had been reduced by 300,000 barrels a day.

While uncertainty over the direction of the Iran standoff is adding a risk premium to global prices, the amount of crude taken off the market is dwarfed by outages in other countries.

"The key driver of the tight balances remains the weakness in non-Opec supply, where over 1 million barrels per day of unplanned outages remains in place," said Amrita Sen, an oil analyst at Barclay's Capital.

A dispute over transit fees between South Sudan and Sudan has stopped exports from the southern country. Libya, once a producer of 1.8 million barrels per day, is predicted to struggle to raise its production above the current 1.4 million bpd as investment in its oil sector has stalled after a promising start to post-war reconstruction. Exports from Yemen and Syria have also been disrupted.

The strain on exports has increased the focus on Saudi Arabia, Opec's biggest producer and the only country in the world with substantial spare capacity - the ability to increase production within a three-month period. But Saudi's spare capacity of 2.5 million bpd is disputed by many experts.

"With spare capacity at no more than 1.7 mbd and inventories well below the seasonal average, the lack of shock absorbents lends itself to an extremely nervous market," said Ms Sen.

The National
Economic and Business News
2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | News Archive
Most Viewed Companies
Ticker Price Volume
QNBK 150.8 86,604
SABIC 83.63 5,803,707
RIBL 10.99 526,123
DARALARKAN 6.15 14,298,286
RJHI 58 1,383,522
EEC 27.37 1,310,784
TAWUNIYA 93.99 78,474
Recent News

Dull trading on Muscat bourse
Muted trading activity resulted in the MSM30 Index closing at 5,812.16 points, down by 0.10 per cent. The MSM Sharia Index gained 0.05 per cent to end at 885.07 points.

Bank Muscat was the

Oman looking to woo UK investors
Capitalizing on its strategic location, infrastructure, regional ties and talent, Oman is looking to lure UK waste management and logistics companies to set up offices in the sultanate, helping them

QNB wins ‘Consumer Service Innovation Award’ in London
QNB has won the “Consumer Service Innovation Award” at the 10th Global Telecoms Business Innovation Awards held recently in London. The award, the bank said, distinguishes QNB for its contribution to

Mashreq’s business units maintain momentum in Qatar
Leading bank Mashreq has seen its Corporate Finance maintaining its momentum by actively pitching and growing its transaction pipeline. Most notably, Corporate Finance, together with its coverage a

Ezdan Mall, ELAN Media sign ad partnership
Ezdan Holding Group and ELAN Media, the media arm of ELAN Group have recently signed a partnership where ELAN Media will be the exclusive media representative for Ezdan Mall. The announcement was

GulfBase GCC Index
Search By
  • Company Symbol
  • Company Name
  • Mutual Fund Name
  • News Content
Send this page to a friend

Poll

Looking ahead, what change you are more likely to make in investing in your domestic stock market?