Oil weighs heavily on MENA growth forecast: IMF
Put simply, if WTI’s discount to Brent is deep enough to cover shipping and transportation costs, it could be an opportunity for US companies to seek higher prices outside North America via exports — although that is not a given.
But Kumar said that if US crude becomes more competitive, “there is a danger Saudi export cuts may benefit the US.” However that may not become clear for a while, said another observer.
Kumar said there was a delicate balance to be struck when it comes to cutting production, as an upshot could be a sharp fall in export revenue for producers. That issue would be debated at the OPEC meeting in Vienna next month when members will decide whether to extend last year’s accord on production cuts, or deepen them.
Kumar said: “Extending is easier as there will be wider support, whereas deepening is more difficult because it means several countries (including Iran) will have to cut their output by much more than they are already doing. And that’s not good for their exports.”
“You may see objections from the Iranian side.”
Observers said Saudi Arabia had put in place the deepest cuts of all OPEC countries, to about 10 million bpd, with exports well below their 2012-2016 average, according to the Joint Organizations Data Initiative ( JODI).
Saudi Arabia’s Energy Minister Khalid Al-Falih said in May the country would “markedly” reduce exports to the US in an effort to cut crude inventories. Shipments to the US dropped from March through August, when they reached the lowest this year, according to tanker data. Overall Saudi exports plunged to the lowest in 34 months in July, and were about 1 million less than a year earlier, according the Riyadhbased JODI, which collects data including production and exports directly from countries.
A recent note from broker RBC Capital Markets said the challenge was to move crude from the oversupplied Atlantic Basin to undersupplied areas like Asia. It said a positive signal on that front emerged recently when Saudi Aramco announced hikes to official selling prices for light crudes into Asia for November to the highest price level since the downturn kicked off in 2014.
JP Morgan said in a note that, on balance, there was upside potential for prices despite the danger production cuts and price rises would incentivize supply, particularly from US shale producers.
The US bank said: “Concerns that OPEC compliance would fade into the fourth quarter of 2017 now appear unfounded. Furthermore, stronger-thanassumed economic growth offers the potential for tight market conditions to continue if OPEC extends the current deal for another nine months.”
JP Morgan added that US recertification of Iranian compliance with its nuclear agreement obligations could trigger upside price risks as well.
“The potential for deeper cuts from OPEC as Nigeria, Libya and possibly Iran accept new production targets could all improve 2018 market balance projections,” it said.
Morgan Stanley said its view of the market was not strong enough to send oil prices on a structural path higher, but nevertheless the new mood supports Brent at about $55 a barrel. DUBAI: A massive slide in the economic growth of Middle East top oil exporters is weighing heavily on the outlook for the entire region, the International Monetary Fund said on Tuesday.
“Fuel exporters are particularly hard hit by the protracted adjustment to lower commodity revenues,” the IMF said in its World Economic Outlook for October.
Iran’s growth is forecast to slide to 3.5 percent this year down from a strong 12.5 percent in 2016.
Iraq’s economy, which experienced healthy 11 percent growth in 2016, is expected to fall into negative territory and shrink by 0.4 percent this year.
The Saudi economy, the largest in the region, is forecast to end 2017 flat — down from 1.7 percent growth last year.
Saudi Arabia, Iraq and Iran are the top oil producers and exporters in the Middle East. Riyadh is the world’s top oil exporter.
Kuwait’s economy is projected to shrink the most among oil exporters, by 2.1 percent, while the economies of the UAE and Algeria will grow at a modest rate, the IMF said.
In all, the growth of Middle East and North Africa (MENA) oil exporters Iran, Iraq, Algeria and the six Gulf Cooperation Council (GCC) states is forecast to end this year at 1.7 percent from 5.6 percent in 2016.
MENA growth as a whole is projected to more than halve in 2017, from 5.1 percent to 2.2 percent, “on the back of a slowdown in the Islamic Republic of Iran’s economy after very fast growth in 2016 and cuts in oil production in oil exporters,” the IMF said.
It projected the price of oil to average $50.3 a barrel in 2017, higher than the previous year, but will remain in the 50s until 2022.
The diplomatic rift between OPEC member Qatar — also the world’s top exporter of liquefied natural gas — and a Saudi-led Arab bloc has not affected oil and gas markets, as Qatar’s exports have continued, the IMF said.
However, the report warned of the impact of ongoing conflicts, both domestic and regional.
“Internal and cross-border conflict in parts of the Middle East still weighed on economic activity,” it said.