Oil export losses to reach $300b in Mideast, Central Asia

WASHINGTON — The International Monetary Fund (IMF) said on Wednesday that losses from lower oil exports should sap up to $300 billion from economies in the Middle East and Central Asia this year, as countries in the region adjust to falling crude prices.

Economies that are particularly dependent on oil exports, including Qatar, Iraq, Libya and Saudi Arabia, will be hit hardest by the more than 50 per cent decline in petroleum prices, the IMF said in an update to its outlook for the Middle East and Central Asia.

Of the major exporters of the Gulf Cooperation Council (GCC), the IMF predicted that only Kuwait would maintain a budget surplus this year. Saudi Arabia, Bahrain, Oman, Qatar and the United Arab Emirates will sink into deficits.

The hit will amount to another $125 billion for other oil and gas exporters across the Middle East, Iran, Iraq, Algeria and Libya, and exporters of Central Asia, pushing nearly all into fiscal deficits this year, the IMF said.

Oil prices are now hovering near six-year lows amid expectations of an abundance of supply tied to unexpectedly high production of US shale crude.

The IMF said, however, that falling crude prices will not translate immediately into major gains for oil importers in the Middle East and Central Asia, which have been hurt by the slowing growth prospects of key trading partners in the eurozone and Russia.

The IMF this week cut its forecasts for global economic growth to 3.5 per cent for 2015 compared with an October outlook of 3.8 per cent, and significantly lowered projections for oil exporters Russia, Nigeria and Saudi Arabia.

The IMF said nearly every exporting country in the Middle East and Central Asia is expected to run a fiscal deficit this year because of the oil price shock, which prompted the IMF to downgrade the region's growth prospects by as much as 1 percentage point compared with its October forecasts, to 3.4 per cent for 2015.

The losses are likely to reach 21 percentage points of the gross domestic product (GDP) in the countries of the GCC, or about $300 billion. In non-GCC countries and in Central Asia, the expected losses are $90 billion and $35 billion this year, the IMF indicated.

Oil importers will see smaller gains, compared to exporters' losses, as their economies are less dependent on the price of petroleum, the IMF said. 

Morocco, Lebanon and Mauritania are expected to gain most from falling crude prices, while Lebanon and Egypt are likely to see improved fiscal balances, the IMF indicated.

The IMF expects oil-importing countries in the Middle East to save most of the windfall, boosting their current account positions by 1 percentage point of GDP, compared with what the IMF forecast in October.

Central Asian importers should see worse external positions this year, compared with the October forecasts, because of lower demand from Russia and China, the fund said.

"Most oil exporters need oil prices to be considerably above the $57 [a barrel] projected for 2015 to cover government spending, which has increased in recent years in response to rising social pressures and infrastructure development goals," it added.

Only Kuwait, Turkmenistan and Uzbekistan appear able to keep their budgets balanced, it indicated.

But the report said that most oil exporters retain significant cushions from years of surplus, and have substantial financial assets and borrowing power, allowing them to avoid suddenly slashing their budgets.

Even so, it said, spending growth could slow in many to adjust to what could be lower prices over several years or more.

Lower global crude prices since June, is delivering a windfall to importers and giving the global economy more support.

Separately, Kuwait's oil minister said Wednesday that his country plans to spend about $100 billion in the next five years on oil projects to modernise the vital sector.

"We already have started the implementation of the 2030 strategy, and overall spending over the next five years is estimated to be at $100 billion," Ali Al Omair told an oil conference in Kuwait City.

The funds "will be spent on various projects related to production, refining, petrochemicals, as well as transportation”, Omair said.

Kuwait, a member of the Organisation of Petroleum Exporting Countries (OPEC) plans to increase its crude production capacity to 4 million barrels per day (bpd) by 2020 and maintain it until 2030 from the current level of about 3.2 million bpd.

The investment plans come as oil prices have shed about 60 per cent of their value since June. Income from the sector accounts for around 94 per cent of Kuwait's public revenues.

The government earlier this month proposed investment spending of $155 billion during the next five-year development plan starting in April.

Nizar Al Adasani, the chief executive of national oil conglomerate Kuwait Petroleum Corp., told the conference the emirate plans to raise its production capacity to 3.5 million bpd by the end of 2015.

"We are focusing on the upstream where the challenges are so great. It is our strategy to invest to maintain excess capacity," said Adasani.

In the past year, Kuwait has launched two megaprojects, one worth $12 billion to make two of its three refineries more environmentally friendly and another valued at $4.2 billion to produce heavy crude.

It is still reviewing bids for a $15 billion project to build a new 615,000-bpd refinery.

Iraqi Oil Minister Adel Abdul Mahdi predicted that world prices would not fall much further.

"Our estimate is that the prices have reached the bottom. It is very difficult to drop lower than this," Abdul Mahdi told the conference in Kuwait.

"We do not find any real justification for the big and persistent drop in oil prices," said the Iraqi minister whose country is the second largest OPEC producer after Saudi Arabia. "A number of factors will work to correct oil prices upward."

Oil rebounded in Asia Wednesday, with international benchmark Brent North Sea crude for March, adding 44 cents to $48.42, as traders bought the commodity at cheaper prices following a slide to near six-year lows.

But analysts do not expect the rebound to last, as weakening global demand and a supply glut show no signs of abating, especially after the latest gloomy IMF forecast for the global economy.

The Iraqi minister said current low prices will knock out part of the high-cost production, especially shale oil.

This is likely to reduce the amount of surplus production, currently estimated at 2.5 million barrels per day, and support prices, he said.

The world's biggest miner BHP Billiton said on Wednesday that it was cutting back its operating US shale oil rigs by 40 per cent because of the price slump, but still expected output to rise for the financial year.

OPEC's top producer Saudi Arabia has said it will not cut production for fear of losing market share.

Its close ally the United Arab Emirates has said the price slump was necessary to correct oversupply by shale producers.

However, Abdul Mahdi said that other group members had been attempting to broker an output cut in coordination with the world's top crude producer, non-OPEC Russia, to shore up prices.

"Venezuela is exerting huge efforts... and there are contacts involving Russia and OPEC to try and cut production," he added.

But the International Energy Forum (IEF), which groups 76 member countries, including consumers as well as producers, did not share the Iraqi minister's confidence about a swift reduction in surplus production.

"It is still very hard to say when the oil market will be in balance," IEF Secretary General Aldo Flores-Quiroga told the conference.

He said that based on IEF figures, the United States has boosted global supply by 1.2 million barrels per day over the last 11 months.

Brazil added an average of 217,000 bpd of supply over the past 10 months, and China also raised its output.

"US output growth has more than compensated production losses elsewhere," Flores-Quiroga said.

He added that based on available statistics, there will still be surplus supplies of crude in the second quarter of 2015.

Non-OPEC oil producer Oman described as bad politics and bad business Wednesday the group’s November decision to make no cut in output, which sent world prices crashing.

OPEC kingpin Saudi Arabia said the decision was necessary to prevent the group losing market share after a sharp increase in US shale oil production.

But Oman, a Saudi neighbour which has been badly hit by the resulting loss in revenue, said it saw no logic to it.

“I fail to comprehend how market share became more important than revenue,” Omani Oil and Gas Minister Mohammad Al Rumhi told the conference.

Rumhi said that before the decision, with oil trading at $100 a barrel, OPEC was earning $3 billion a day from its output of 30 million bpd.

“When earnings dropped to $2.9 billion, $2.8 billion, they got up to defend market share... and as a result, revenues dropped to roughly $1.5 billion,” the Omani minister said. “This is politics that I don’t understand. Business? This is not business.”

Ruhmi said the fall in prices had hit the Gulf sultanate hard and “it is really a difficult time in Oman”.

Income from Oman’s oil output of around 1 million bpd accounts for some 80 per cent of revenues and the sultanate last month forecast a budget deficit for 2015 of $6.47 billion (5.35 billion euros).