Oil under $45 would be 'concerning' to GCC - analyst

OIL THRESHOLD: A leading analyst says Gulf states would be concerned if oil fell below $45 a barrel. (Getty Images)

A drop in oil below $45 a barrel would be "concerning" for the richest GCC countries on fears of shrinking economic growth and cutbacks in infrastructure spending, a leading commodities analyst said on Thursday.

Hussein Allidina, head of commodities research for investment bank Morgan Stanley told Arabian Business on Thursday: “I think the UAE and Saudi (Arabia) can cope in a $45 to $50 oil environment but if it falls below that it may get concerning. They would have to have cut back on expenditure."

His comments come the day after UAE president Sheikh Khalifa Bin Zayed Al Nahyan allayed fears that the local economy could be badly impacted by the plummeting oil price.

In a wide-ranging interview with an Egyptian daily newspaper published on Wednesday, he said the country was "closely monitoring" the situation but that action would be taken to deal with any "negative impact".

Oil has fallen by almost $100 a barrel since hitting a record peak above $147 a barrel in July as the global credit crunch dents demand in large consumer nations like China and the US.

US light crude for January delivery stood at $53.57 a barrel at around midday UAE time on Thursday.

Speculation has been rife in recent weeks about how GDP growth of big oil producing GCC countries will be affected if oil prices continue to plummet.

Gulf countries are heavily reliant on oil as the main driver of the economy and have budgeted infrastructure spending on roads and big real estate projects on oil prices staying above a certain level.

Last week, US bank Citigroup said that Gulf Arab countries could witness an abrupt decline in external surpluses next year if oil prices averaged $50 a barrel or below.

With oil at $50, Saudi Arabia, the UAE and Qatar would all post external trade deficits in 2009, Citigroup said in a research note.

The bank said Saudi Arabia's deficit could hit 28 percent of the gross domestic product, compared with a surplus of 30 percent this year, when oil prices should average $99 a barrel.

Kuwait would be the only member of the Gulf Cooperation Council (GCC) to post an external surplus, it said.

And last month, Ziad Makhzoumi, CFO of Dubai-based construction giant Arabtec, was quoted in UAE media reports as saying: “Most budgets are based on oil from $40 to $50. Only if it goes below that, then some of those projects might be delayed or phased out, especially, government projects.

"Or the project delivery will be extended over a longer period of time. Only in that case, it might have an effect on the economic growth of the UAE and cause a further slowdown or delay of certain projects.”

Print | Email | Discuss this article |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Security Code *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM