Calling a bottom in the volatile oil market has been a dicey proposition so far this year. But a string of optimistic forecasts is now emanating from key stakeholders.
Global oil prices have bottomed out, with signs of a recovery seen in 2016, Qatar’s Minister of Energy and Industry HE Dr Mohamed bin Saleh al-Sada has said. Growth in non-Opec oil supply slowed “substantially” this year and is likely to remain flat, or turn negative, in the next, al-Sada said on Sunday.
An Opec forecast on Monday saw demand for its oil in 2016 staying much higher as lower prices curb US shale oil and other rival supply sources, deflating a global surplus. Prices are likely to rise early next year amid signs of a decline in production of high-cost crude and improved economic growth, Kuwait’s Oil Minister Ali al-Omair said on Monday.
Brent crude, the European benchmark, has lost 8.2% this year and 41% over the last 12 months. The rout was hastened after Opec decided against propping up prices by cutting output last November.
Amid the apparent move by the Organisation of Petroleum Exporting Countries to drive new producers with higher costs - particularly US shale players - out of the market, US output has dropped as falling prices spurred oil drillers to idle more than half the country’s rigs in the past year. Production is down 440,000 bpd from a four-decade high of 9.61mn reached in June, according to weekly Energy Information Administration data.
Despite the glimmer of hope for a turnaround, it may still be too early for policy makers in the oil-driven economies of the Gulf Co-operation Council (GCC) countries to sit back and relax. Iran, which has been looking to claw back its lost Opec share, could raise overseas shipments by about 500,000 bpd if Western global sanctions are lifted. An unenviable regime of relatively lower oil prices, compared with the consistent $100-levels Gulf countries had been accustomed to for long, is here to stay even if demand picks up next year, according various forecasts. And the plunge in oil prices is expected to produce fiscal deficits in all six GCC countries.
Gulf nations have so far coped well with the oil fall by banking on their fiscal reserves (estimated at $2.45tn by the International Institute of Finance), policy reforms (the UAE has linked domestic oil prices to global markets) and by prioritising their spending plans. But the Gulf’s comfort zone will shrink as oil stays cheaper for long.
Despite the notable success in diversifying away from hydrocarbon revenues, it’s still the oil-driven sovereign spending that filters down to the wider GCC economies. Gulf policy makers  need to focus on fortifying a self-sustaining private sector to delink its growth from state spending. Not only do they need to decouple government spending from the oil factor, the non-oil economy has to be assessed on a stand-alone basis to cushion the impact of any oil revenue volatility in future.

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