BAKU, Azerbaijan, June 7
By Leman Zeynalova – Trend:
Oil prices at $70 per barrel would boost hydrocarbon export revenues in Gulf by 60 percent in 2021 as compared to 2020, Trend reports with reference to the UK-based Capital Economics research and consulting company.
Oil prices hit their highest level in more than two years during week from May 31 through June 5 and, combined with higher oil output over the rest of this year, will help to rein in large twin budget and current account deficits in the Gulf, the company believes.
“This opens the door for policymakers to loosen fiscal policy but if, as we expect, prices drop back by next year, there’s only a short space of time to do so.
Brent crude is currently trading at $71pb – a rise of over $20pb since the start of the year and its highest level since May 2019. The increase has been driven by production restrictions enforced by OPEC+, a dialling back of expectations of how quickly Iranian output will rise, and a stronger recovery in demand from the US and Europe as lockdowns are eased,” said Capital Economics.
The company reminded that OPEC+ confirmed at its ministerial meeting that oil production quotas would be raised by a total of 440,000bpd in July.
“Higher oil production will boost GDP mechanically via an increase in output in the mining sector, providing a lift to recoveries – particularly in Saudi Arabia as the Kingdom’s voluntary 1mn bpd output cut through February to April is unwound. OPEC+ remained coy on production prospects after July, but we think the group is likely to taper production cuts later this year.
Meanwhile, the combination of higher oil prices and output will help to narrow twin budget and current account deficits. On an annualised basis, oil prices at $70pb would boost hydrocarbon export revenues in the Gulf by around 60% compared with 2020. On average, this would lead to an improvement in current account positions equal to 11% of GDP – Saudi Arabia, the UAE, Qatar, and Kuwait would also run current account surpluses this year,” reads the latest report released by Capital Economics.
That all being said, the company expects the price of Brent crude to peak at around $75pb in Q3 this year and fall back to $60pb by the end of next year. “The upshot is that the window for policymakers in the Gulf to possibly loosen the purse strings and support recoveries is probably quite narrow.”
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