UAE's Abu Dhabi emirate will see oil income shrink 30% in 2020, Moody's says

Dubai — Abu Dhabi, the oil-rich emirate of the seven-member UAE federation, will see its oil income shrink 30% in 2020 from a year earlier amid the crude price crash and the coronavirus outbreak, according to Moody's Investors Service.

"Our baseline oil price forecast of $35/bbl in 2020 and $45/bbl in 2021 imply oil revenues will be 30% and 19% below estimated 2019 levels, respectively," Moody's said in a report on Monday.

"Nonetheless, we understand that the government is planning to implement cuts to aid payments, grants and other transfers, in order to reduce the impact on the overall deficit."

Moody's is forecasting that Abu Dhabi's average 2020 oil production will be 2.77 million b/d.

Abu Dhabi is the biggest emirate in the UAE and holds more than 90% of the country's oil reserves.

The UAE plans to cut its production by an extra 100,000 b/d in June, on top of its OPEC+ commitments, to support Saudi Arabia's efforts to balance the market, the country's oil minister Suhail al-Mazrouei said on Monday.

The UAE joins Saudi Arabia, which first announced Monday it would cut an extra 1 million b/d in June, and Kuwait, which will trim its production by a further 80,000 b/d, on top of their OPEC+ commitments.

OPEC+ is trimming its output by a record 9.7 million b/d in May and June and will gradually ease those curbs through April 2022.

Shrinking economy

Moody's said it expects Abu Dhabi's economy to shrink 5.3% in 2020 due to the oil price crash.

"Although the oil price shock has reduced the share of hydrocarbon-related GDP relative to total GDP in recent years, Abu Dhabi's economy remains significantly concentrated in the oil sector compared to its smaller neighboring emirates," Moody's said. "Volatile oil prices have seen the share of hydrocarbon output swing sharply from lows of 32% in 2016 to 40% in 2018 as oil prices partly recovered. Our oil price assumption for 2020 implies that hydrocarbon GDP will be the lowest level on record, but we expect it will increase gradually in line with increasing oil prices."

Abu Dhabi, which is forecast to post a fiscal deficit of 6.3% of GDP in 2020 and 5.1% in 2021, has ample assets in its sovereign wealth fund, Abu Dhabi Investment Authority, estimated at around 240% of the emirate's GDP, which will help it weather the low oil price environment.