1. QNB Economics
economics@qnb.com.qa
Oil prices fall but likely to remain well above Qatari budget level
Brent oil prices (US$)
140
120
100 100
80
60
40
20
0
2008 2009 2010 2011 2012
Source: Financial Times and QNB Group analysis
Oil prices have declined in recent weeks, supply rising by 0.6m barrels per day (b/d) in April,
partly because of concerns about the Eurozone mainly due to recovery in Libya and Nigeria, and
economy, according to QNB Group. However, they capacity expansion in Iraq.
still remain high by historic standards. In its latest report, OPEC forecast that the
Oil has been particularly volatile during the growth in world demand during 2012 will be 0.9m b/d.
last five years. After spiking in 2008, and then Given a forecast 0.6m b/d growth in non-OPEC
collapsing following the global financial crisis, it supply, it expects the average call on OPEC crude this
steadily picked up again during 2009 and 2010 as the year to by 30.0m b/d, a slight decline from 2011.
global economy recovered. However, there are signs of a potential
Fears about supply disruption in early 2011 weakening on the demand front, not only because of
drove prices higher. In a similar way, concerns about the turbulence in Europe but also because of signs of
the supply impact of EU sanctions on Iran and slower growth in China—Chinese exports and imports
geopolitical consideration caused a fresh spike in in April came in well below expectations.
March 2012. Despite all these supply and demand factors,
More recently, however, prices have eased the International Energy Agency said on May 11th that
somewhat as political risk concerns have eased it still expects prices to remain high. The futures
somewhat. At the same time, optimism about the state markets see oil averaging around US$113 this year,
of the global economy during the first quarter has been falling to US$106 in 2013. The median of economists’
tempered by some disappointing data, such as weaker forecasts is higher, at US$115 in both years. This
US job creation. In particular, there have been fresh compares to an average price of US$90 since the start
concerns about the future of the Euro, following the of 2008.
poor showing of pro-bailout parties in the Greek Oil prices, at a range of US$80-100 would not
elections. This has also contributed to downwards only exceed the budget breakeven point for a large
pressure on oil prices. number of OPEC producers, but would also provide a
The benchmark Brent blend declined from a fair price for both producers and consumers, as has
daily peak of US$128/barrel in mid-March to around indicated by a number of officials from oil producing
US$111 in mid-May. Similarly, WTI, the main US countries.
crude, slid from US$110 to US$96. The concern is that persistently high prices—
Oil stocks are currently healthy, with US average annual prices only exceeded US$100 for the
stocks hitting a 20 year high of 380m barrels in early first time last year—could harm the global economy
May. The supply outlook is also good, with global and hence undermine future demand and prices.
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2. Nonetheless, QNB group states that the oil
market has proved itself to be volatile in recent years,
and therefore predictions could have a large margin of
errors. What is almost certain, though, is that the price
will remain comfortably above US$65/barrel, which is
the proposed price assumption for the forthcoming
Qatari budget.
** Ends **
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