GCC’s Stance on Oil Production Remains Vindicated
- 18 March 2015
Competition between oil exporting nations is expected to intensify further amid a litany of tit-for-tat accusations between major players, who are also offering unprecedented discounts to gain – or retain – customers and increase their market share.
This was among the scenarios outlined at a seminar – “Current oil market developments and their impact on the GCC countries” – organised last week by the Emirates Centre for Strategic Studies and Research (ECSSR) and with the participation of an elite group of foreign and local experts.
Apart from the impact on GCC producers, speakers highlighted the situation in other major producing countries such as Russia, Iran and Iraq, as well as on US shale oil production, which now constitutes 70 per cent of its overall oil production and a significant factor in creating oil stock surpluses that led to the recent price deterioration.
Russia, the largest oil producer in the world, is ever in need for revenues generated from its oil and gas exports, especially after the Ukrainian crisis and Western sanctions imposed on it. This suggests that Russia can increase its oil output to more than 10 million barrels a day, as stated by its energy minister.
While calling for the GCC to reduce their oil production, Iran intends to increase production to four million barrels a day, according to the Iranian oil minister’s statements. However, this will depend on whether an agreement is reached with the P5+1 countries and the lifting of Western sanctions imposed on Iran. Because without this agreement, it will not find buyers for its oil, or it will have to offer big discounts and which again will be of limited benefit due to the prevailing low oil prices.
With regard to the GCC countries, the course of events have proven the validity of their position not to cut production and instead maintain market share – a decision that was unanimously made by Opec embers in a meeting held in Geneva late last year. In this, they managed to ward off attempt by some countries to apply pressure towards cutting production.
The economies of many of the oil exporting countries have been affected by the 60 per cent decline in oil prices in less than six months. Yet, those of the GCC countries have proven to be most resilient in dealing with this. This has been clearly manifested in their general budgets for 2015 that are equal or close to those of 2014. GCC nationals have also taken measures to reduce unnecessary aspects of spending in anticipation of the expected fluctuations in oil markets.
The credit rating agency Moody’s emphasised these facts last week in maintaining the GCC’s stable outlook, adding that these economies, particularly Saudi Arabia and the UAE, have accumulated huge cash surpluses. Hence, they can avoid the negative effects resulting from low oil revenues and places them in a position to continue funding their development projects.
As for the near future, it is likely that Opec will not change its stance at the meeting in June in retaining the production ceiling of 30 million barrels a day no matter where oil prices would be at that point.
Oil prices, however, are expected to fluctuate considerably in coming months and even into early 2016 if no grave geopolitical developments happen.
In this respect, the ECSSR seminar succeeded in shedding more light on a range of extremely important issues concerning the future of the industry and the future of oil economies.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.