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Lower oil prices could lead to significant lost in revenue across MENAP oil exporters

Oil&Gas Materials 27 April 2020 11:55 (UTC +04:00)
Lower oil prices could lead to significant lost in revenue across MENAP oil exporters

BAKU, Azerbaijan, April 27

By Leman Zeynalova – Trend:

Notwithstanding some improvement over the past two years, breakeven oil prices (oil prices needed to balance the budget) are much higher than current oil prices in all MENAP (Middle East, North Africa, Afghanistan, and Pakistan) oil exporters, exceeding $80 in some countries (Algeria, Bahrain, Iran, and Oman), Trend reports citing the International Monetary Fund (IMF).

IMF said in its report that the decline in global oil demand has been exacerbated by a large increase in oil supply, triggered by announced production increases in some major producers (Russia, Saudi Arabia, UAE) after the breakdown of the Organization of Petroleum Exporting Countries and other major oil producers (OPEC+) agreement in March.

“A subsequent production cut agreement by OPEC+ at the start of April, complemented by further production cuts by oil exporting G20 economies, could provide support to oil prices, particularly if global demand increases. Nevertheless, oil prices have tumbled by more than 60 percent since the beginning of this year, reaching $26 per barrel by the end of March. Measured in real terms (adjusted for inflation), oil prices have not been this low since 2001. Oil prices at these levels could result in more than $230 billion in lost annual revenue across MENAP oil exporters, compared with October projections, placing significant strains on fiscal and external balances. For some countries (Algeria, Bahrain, Iraq, Oman), this could lead to a rapid depletion of buffers, particularly as spending pressures increase to combat the COVID-19 outbreak,” IMF said.

The organization said that the COVID-19 pandemic is significantly affecting MENAP oil exporters.

“Nearly all countries in the region are affected by the spread of the virus, with some facing severe outbreaks. At the same time, a plunge in global oil prices is compounding strains on these economies, increasing challenges to combating the virus and preventing lasting economic damage. Beyond the devastating toll on human health, this combination of shocks is resulting in significant economic turmoil across the region. Real GDP in MENAP oil exporters is projected to contract by 4.2 percent in 2020,” reads the report.

The COVID-19 epidemic has been reported in all MENAP oil exporters, said IMF.

“Iran has a particularly high concentration, with more than 50,000 cases and more than 3,000 fatalities and is a source of risk for ongoing virus infections throughout the region. Necessary containment measures to halt the spread of the virus have affected job-rich sectors across the region, with negative effects on confidence and non-oil activity. Lower growth in trading partners. Containment measures in major economies and key trading partners have significantly reduced global growth and demand for oil and other commodities. This has resulted in lower trade and tourism flows and significant declines in global oil prices.”

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Follow the author on Twitter: @Lyaman_Zeyn

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