The year that is drawing to its close has been turbulent for the Middle East. While oil prices stubbornly refused to respond to efforts to push them higher, remaining locked in a tight and not particularly pleasant range. Will 2020 be any different?
For oil prices, hardly. The International Energy Agency said earlier this month it
expected a 700,000 bpd overhang in global oil supply during the early months of
the new year. Then last week Russia’s Energy Minister Alexander Novak said he expected OPEC+ to discuss relaxing the deeper production
caps it just agreed to at a meeting in March.
While a discussion does not mean a relaxation, the very
possibility of reversing some or all of the additional cuts just three months
after OPEC+
agreed them
is enough to add pressure to prices.
In more pressure for oil prices, Saudi Arabia and Kuwait
finally reached an agreement for the restart of operations at two shared oil
fields in the neutral zone between the two countries. The production capacity
of the fields is half a million barrels daily, The National reported, quoting a
Refinitiv analyst who also added that while it will be a while before the
effect on oil prices is felt, it will be felt eventually.
"The addition of
100,000-200,000 barrels of heavy sour will not be felt in the beginning but
once it starts moving towards 300,000 bpd, it might pose a problem for
Opec+," Ehsan Ul-Haq told the Emirati daily.
As for the geopolitical
situation, the events from this year have strongly suggested that an open
confrontation led by Saudi Arabia and Iran is highly unlikely.
Finally, there were the
attacks on Saudi oil production that were for many the highlight of the year on
oil as they temporarily took 5.7 million bpd in production capacity off the
market.
Bloomberg reported this week, citing Citi analysts, that “Geopolitical
disruption risk has not disappeared” in the Middle East and yet this risk has
been “heavily discounted by markets, which look to us to be more vulnerable to
disruption.”
This does not bode well for
the oil-dependent economies in the region. With many still struggling to return
to growth in the absence of high oil prices, Fitch has forecast deficits for
some may even deepen next year if oil prices fall further. This, in turn, will
aggravate social and political problems already brewing because of high
unemployment and bad governance, Bloomberg’s Netty Ismail wrote, quoting a
Fitch Ratings director.
“Reforms to stabilize public
and external finances in both oil importers and some exporters risk further
social and political backlash,” Krisjanis Krustins said.
This problem could be
particularly worrisome for Saudi Arabia if Aramco’s shares don’t live up to the
promise of solid returns. A lot of ordinary Saudis borrowed money to buy into
the state oil giant, and if they lose this money or fail to make a profit on
them, Ryiadh may have a bigger problem than oil prices on its hands.For oil prices, hardly. The International Energy Agency said earlier this month it
expected a 700,000 bpd overhang in global oil supply during the early months of
the new year. Then last week Russia’s Energy Minister Alexander Novak said he expected OPEC+ to discuss relaxing the deeper production
caps it just agreed to at a meeting in March.
While a discussion does not mean a relaxation, the very
possibility of reversing some or all of the additional cuts just three months
after OPEC+
agreed them
is enough to add pressure to prices.
In more pressure for oil prices, Saudi Arabia and Kuwait
finally reached an agreement for the restart of operations at two shared oil
fields in the neutral zone between the two countries. The production capacity
of the fields is half a million barrels daily, The National reported, quoting a
Refinitiv analyst who also added that while it will be a while before the
effect on oil prices is felt, it will be felt eventually.
"The addition of
100,000-200,000 barrels of heavy sour will not be felt in the beginning but
once it starts moving towards 300,000 bpd, it might pose a problem for
Opec+," Ehsan Ul-Haq told the Emirati daily.
As for the geopolitical
situation, the events from this year have strongly suggested that an open
confrontation led by Saudi Arabia and Iran is highly unlikely.
Finally, there were the
attacks on Saudi oil production that were for many the highlight of the year on
oil as they temporarily took 5.7 million bpd in production capacity off the
market.
Bloomberg reported this week, citing Citi analysts, that “Geopolitical
disruption risk has not disappeared” in the Middle East and yet this risk has
been “heavily discounted by markets, which look to us to be more vulnerable to
disruption.”
This does not bode well for
the oil-dependent economies in the region. With many still struggling to return
to growth in the absence of high oil prices, Fitch has forecast deficits for
some may even deepen next year if oil prices fall further. This, in turn, will
aggravate social and political problems already brewing because of high
unemployment and bad governance, Bloomberg’s Netty Ismail wrote, quoting a
Fitch Ratings director.
“Reforms to stabilize public
and external finances in both oil importers and some exporters risk further
social and political backlash,” Krisjanis Krustins said.
This problem could be
particularly worrisome for Saudi Arabia if Aramco’s shares don’t live up to the
promise of solid returns. A lot of ordinary Saudis borrowed money to buy into
the state oil giant, and if they lose this money or fail to make a profit on
them, Ryiadh may have a bigger problem than oil prices on its hands.