OIL PRICE: $40
BOE - Crude will probably drop to less than $40 a barrel unless OPEC and allied producers extend their collective cuts in output beyond June, according to the Abu Dhabi Investment Authority’s head of research.
The six-month cuts that took effect in January have set a floor for prices, but an increasing supply of U.S. shale oil together with record-high inventories are keeping the per-barrel price of crude from rising beyond the upper $50s, Christof Ruehl said Wednesday at a conference in Dubai.
“If OPEC and the coalition don’t extend the agreement to continue cuts, that price floor will go,” he said. “Without it, prices would fall, and there’s nothing to stop oil going below $40 a barrel.”
The Organization of Petroleum Exporting Countries and other major producers including Russia agreed in December to pump less oil to try to rein in a global glut weighing on prices. OPEC plans to decide at a meeting next month whether to extend its production cuts into the second half of the year. Benchmark Brent crude was trading 9 cents lower at $52.01 a barrel at 2:14 p.m. Dubai time.
Producer countries won’t come close to eliminating the excess of stored oil unless they extend their output limits into the second half of the year, said Ruehl, who worked formerly as BP Plc’s chief economist. Oil consumers may need two and a half more years to use up the current surplus in global inventories, he said.
One consequence of the cuts for OPEC is that Iraq and Iran are gaining market share at the expense of the group’s biggest member Saudi Arabia, Ruehl said. The Saudis have made comparatively larger cuts in production than Iraq, which ranks as OPEC’s second-biggest producer, while Iran, the third-largest, is allowed to slightly increase output.
Abu Dhabi, capital of the United Arab Emirates, holds most of the OPEC nation’s crude reserves. The Abu Dhabi Investment Authority is one of the world’s largest sovereign wealth funds.
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IMF - Output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. The banking system remains stable with large capital buffers. Growth is projected to decelerate over the medium term.
IMF - Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. Inflation declined to its lowest level in more than two years. Real GDP expanded by 2 percent in the first quarter of 2018 compared to the first quarter of last year. However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.