Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Gulf countries get fiscal leeway after OPEC+ extends output cuts

CommoditiesMar 08, 2021 10:11AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: A view shows branded oil tanks at Saudi Aramco oil facility in Abqaiq 2/2

By Davide Barbuscia

DUBAI (Reuters) - Oil-rich Gulf Cooperation Council (GCC) countries, whose state coffers have been battered by the coronavirus crisis, are set to get some fiscal respite after OPEC and its allies last week agreed to extend most oil output cuts into April.

While lower output could weigh on the region's overall growth this year, higher oil prices are set to curb deficits, providing some headroom for a potential boost to GCC economies recovering from the COVID-19 pandemic.

"These countries will still benefit from the higher oil revenue, as the forecast increase in oil price outweighs the lower output," said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

"The marked narrowing in the fiscal deficit with higher oil revenue gives further space to increase fiscal support to the economies."

Oil prices jumped to their highest levels in more than a year last week after the OPEC+ decision. OPEC's leader Saudi Arabia said it would extend its voluntary oil output cut of 1 million barrels per day for a third consecutive month, and that it would decide in coming months to gradually phase it out.

JPMorgan (NYSE:JPM) last week revised upwards its 2021 and 2022 Brent price forecasts by $3 and $2, respectively, to $67 a barrel and $74 a barrel.

On Monday, Brent crude futures climbed above $70 a barrel for the first time since the COVID-19 pandemic began, following reports of attacks on Saudi Arabian facilities. [O/R]

SAUDI GROWTH

Some economists lowered their headline growth forecasts for Saudi Arabia, the Gulf's largest economy and the world's top oil exporter, due to the more gradual increase in oil production than previously expected.

"We had our 2021 forecast at $46 per barrel for most of 2020 given the uncertainty over oil demand and supply for most of last year. Back then we assumed OPEC discipline would break down quite quickly as demand recovered. So we had penciled in quite a large increase in Saudi output for 2021, which would push oil GDP up quite sharply, giving overall GDP of around 4%," said James Reeve, chief economist at Samba Financial Group.

"There has not been the discipline collapse that we were anticipating... With oil production now likely to be flat, we think overall growth will be around 2.5%," he said.

ADCB's Malik lowered real GDP growth forecasts but revised upwards nominal GDP growth and fiscal balance expectations. Saudi Arabia is now forecast to achieve a 1% real GDP growth, down from a 2.4% estimate last month, but its deficit is likely to shrink to 3.9% from a previous 5.6% prediction, she said.

Translating higher oil prices into growth will depend ultimately on how oil receipts are re-deployed.

"Granted, a Brent north of $70 per barrel market would propel forward nominal GDP growth but real GDP growth – which is based on the volume of output – is not expected to rise. On the contrary, there are downside risks to our oil GDP estimates," said Ehsan Khoman, head of emerging markets research, EMEA, at MUFG Bank.

"This would reverse should oil receipts be channelled into higher capex spending – which is historically not unprecedented in the region during periods of a more benign oil market."

Gulf countries get fiscal leeway after OPEC+ extends output cuts
 

Related Articles

Oil edges up as Iran nuclear talks drag on
Oil edges up as Iran nuclear talks drag on By Reuters - Jun 20, 2021

By Florence Tan SINGAPORE (Reuters) - Oil prices nudged up on Monday, underpinned by strong demand during the summer driving season and a pause in talks to revive the Iran nuclear...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Alan Rice
Alan Rice Mar 08, 2021 12:37PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Crude Target: 1 Ounce of Gold / 1 bbl.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email