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Middle East oil exporters will see lower breakevens even as prices stall: IMF


Vaccine rollout, higher oil prices support improved outlook

Oil prices expected be around $57/b at yearend

Saudi Arabia's fiscal breakeven price is $76.20/b for 2021

  • Author
  • Katie McQue
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  • Claudia Carpenter
  • Commodity
  • Oil

Dubai — The breakeven oil prices that Middle Eastern countries need to balance their state budgets are largely projected to fall in 2021 and 2022 on expectations of higher oil prices and economic recoveries, according to the International Monetary Fund's regional outlook for Middle East and Central Asia.

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Saudi Arabia's breakeven price is expected to drop to $76.20/b this year from $77.90/b in 2020, and fall further to $65.70/b in 2022, according to IMF data released April 11.

Meanwhile, Oman's breakeven price will fall to $72.30/b in 2021 from $95.80/b in 2020 while the UAE's breakeven price declines to $64.60/b from $68.20/b in 2020, the IMF said. In contrast, Kuwait's fiscal breakeven price is expected to inch up to $69.30/b in 2021 from $68.10/b in 2020, but decrease to $64.50/b in 2022. Iraq's breakeven price is projected to increase to $71.30/b in 2021 from $63.70/b last year.

"Fiscal accounts deteriorated sharply across the region in 2020, reflecting lower revenue because of contracting domestic demand and the slump in oil prices, as well as policy support measures to mitigate the pandemic's impact," the IMF said in a report. "Oil exporters recorded a larger deterioration in their public finances than oil importers did, reflecting lower oil revenue."

For the Middle East and North Africa region, fiscal deficits widened to 10.1% of GDP in 2020 from 3.8% in 2019, according to the IMF.

Higher oil prices and early vaccine rollouts, especially in the UAE, support the improved outlook for many Gulf Cooperation Council economies, the IMF said.

"UAE was one of the most advanced countries in the region in early inoculators" against the pandemic, Jihad Azour, the IMF's director of the Middle East and Central Asia, said at an April 11 press conference. "This allowed the UAE economy to adjust to the second wave" and should help the economic recovery, he said. Expo 2020, the international fair planned in Dubai in October this year, "will provide an additional boost to the non-oil economy," he said.

Improved demand

Oil prices have recovered since the last quarter of 2020, reflecting improved global demand, combined with the OPEC+ agreements to extend oil production cuts and Saudi Arabia's announcement of additional voluntary production cuts, the IMF said.

Oil futures curves point to prices hovering near current levels in the coming months, reaching $57/b at the end of 2021 before dropping to $53/b in 2022 as supply is expected to pick up, still below the 2019 average of $64/b, the IMF said. By contrast, as of April 8 S&P Global Platts Analytics is looking for prices over $70/b around mid-year, after fund selling pushed Dated Brent to $62-$64/b. Firmer fundamentals are expected beginning in May with sequential demand increases which will require "substantial" stock draws in May thru August," it said.

"Oil activity will remain subdued in the short term, reflecting the OPEC+ production curbs and continued US sanctions on Iran. While oil GDP is projected to expand by 5.8% in 2021, this primarily reflects the surge in Libya's oil production by 233% after the re-opening of oil fields and ports in late 2020," the IMF said. "The recovery in oil importers is expected to be sluggish in the near term, with growth projected at 2.3% in 2021."

The IMF noted climate change is affecting the region, with some countries experiencing more frequent extreme heat events and water supply issues.

"These challenges are likely to deepen, highlighting the urgent need to identify policy priorities for adaptation and invest in climate-resilient infrastructure," the IMF said. "The region's oil exporters face the additional challenge of making the transition away from oil dependence as the world progressively shifts away from fossil fuels."