An oil pump operates in the Awali oil field in Bahrain (file). “The combination of the recent decline in global oil prices and rising fiscal breakeven oil prices can only dent their (GCC) fiscal buffers modestly in 2015,” Moody’s said.
By Santhosh V Perumal
Business Reporter
Weakness in world energy market and rise in breakeven oil prices will lead to a “modest” dent in the fiscal buffers of the Gulf Co-operation Council (GCC) economies next year, according to global credit rating agency Moody’s.
The oil-exporting countries of the GCC (ratings range from ‘A1’ to ‘Aa2’, with stable outlooks) in 2014 continued to register large fiscal surpluses, accumulate offshore assets, and maintain low government debt levels, it said in a report ‘2015 Outlook: Global Sovereigns’.
“The combination of the recent decline in global oil prices and rising fiscal breakeven oil prices can only dent their fiscal buffers modestly in 2015,” Moody’s said.
GCC sovereign credit profiles are likely to remain resilient to the uncertainty emanating from the unfolding geopolitical risks. Nonetheless, the risk that a flare-up in regional geopolitical tensions could disrupt oil exports and adversely affect investors’ perceptions of these countries is one of their main credit constraints.
Cautioning that the channel through which ‘geopolitical risk’ may affect sovereign credit quality is not always easy to discern; Moody’s said Turkey could suffer immediate and direct shocks from any disruption to its trade with the GCC or Iraq.
For the Middle East and North Africa (Mena) region, strengthening US growth should imply positive economic conditions for sovereigns with trade links to the US economy. But the normalisation of the US monetary policy also poses risks to those countries with currency pegs to the US dollar, should market participants come to fear that the process will be a disorderly one, according to the rating agency.
The principal risks to sovereign creditworthiness across the globe, it said, are the possibility of confidence shocks from the expected rise in the US interest rates, especially in the case of a disorderly market reaction, the impact of lower growth in China and the euro area, the overhang of geopolitical risks, and reform fatigue.
“Turmoil in the Middle East will continue to impact investor confidence in the affected countries and neighbouring regions, though we expect that the impact on sovereign creditworthiness will continue to be limited to those governments in closest proximity to the crisis in Syria and Iraq, unless the conflict significantly escalates,” Tom Byrne, senior vice president in Moody’s Sovereign Risk Group, said.
Another major trend that could affect global growth is the continued economic slowdown in China, with growth expected at between 6.5% and 7.5% in Moody’s baseline scenario.
“A steeper-than-expected slowdown could negatively impact sovereigns with heavy reliance on oil exports to China, such as Oman, Saudi Arabia and Kuwait,” it said.
Otherwise, Moody’s said a gradually recovering global economy will support continued stable credit quality of the world’s sovereigns in 2015.
On the positive side, global gross domestic product growth is likely to continue at a steady pace in 2015, though at lower levels than before the crisis.
Saudi, Russia pre-Opec talks yield no output cut
Reuters
Vienna
Talks between Saudi Arabia, fellow Opec member Venezuela and oil powers Russia and Mexico failed to find an agreement to address a growing oil glut yesterday, with no side saying they would lower output despite a collapse in prices.
Oil prices turned lower after the meeting, with international benchmark Brent falling more than $1 a barrel to near $78.
In a day of shuttle diplomacy ahead of Opec’s crucial output meeting in Vienna tomorrow, Russian and Mexican energy officials rushed to the Austrian capital to push Opec leader Saudi Arabia on the 30% price fall since June.
Venezuelan Foreign Minister Rafael Ramirez told reporters after the meeting that while all sides agreed current prices were “not good” for producing countries, no output cuts could be arranged - or guaranteed at Thursday’s Opec meeting.
“We discussed the situation in the market, we shared our points of view, we need to keep in contact and we agreed to meet again in three months,” Ramirez, who until recently was oil minister and president of state oil company PDVSA, said.
Venezuela, a noted price hawk, would try for an output agreement within Opec instead, he said.
Igor Sechin, the head of Russian state oil company Rosneft and a close ally of President Vladimir Putin, arrived in Vienna yesterday amid hints that Moscow could cut output or exports if the producer group did the same. Russian Energy Minister Alexander Novak also attended the four-country meeting.
Mexican Energy Minister Pedro Joaquin Coldwell left the meeting before the other participants, without giving a statement.
Oil market watchers are divided on the outcome of Opec’s Thursday meeting in the Austrian capital. Predictions range from a large production cut to revive prices, to a small reduction, or none at all.
Current prices are far below what most Opec members and rival producers such as Russia need to balance their budgets, but the group has struggled to adapt to growing supplies from the US shale boom.
Some analysts say an Opec cut of as much as 1.5mn (bpd) is needed to support oil prices and avoid increasing a supply glut in the first half of 2015.
Algerian Energy Minister Youcef Yousfi told the official APS news agency yesterday that Opec would seek a “consensual step” to try to bring stability to the oil market, without giving further details.
Diplomatic and market sources say Saudi officials told briefings in recent months that the kingdom, with its large currency reserves, was prepared to withstand oil prices as low as $70-$80 per barrel for up to a year.
Saudi Oil Minister Ali al-Naimi said earlier this month that Riyadh’s desire for stable markets had not changed but gave no clue about his response. Pages: 2, 6, 15; Viewpoint: Page 32
