Oil at $50 Won't Save Struggling GCC Countries: Moody's

by Ship & Bunker News Team
Tuesday June 7, 2016

Oil at $50 per barrel is not good enough for some GCC countries struggling to balance their books: that is the contention of a new Moody's analysis of the institutional strengths of the GCC sovereign.

While the current price point has caused many observers to state that the market overall is finally on track to recovery, Moody's believes it still poses an economic threat: CNBC analyst Jackie DeAngelis notes that even with economic diversification, new taxes, subsidy reforms, and other strategies undertaken by the GCC, Moody's believes "it's not enough to carry them through the tough times."

In listing the six countries most vulnerable to oil shock, Moody's surprisingly names countries assumed to be the least vulnerable as the most at risk, and vice versa; hence, Saudi Arabia, Bahrain, and Kuwait are named most at risk, while the United Arab Emirates, Quatar, and Oman are least at risk.

DeAngelis goes on to point out that $50 oil "poses a geopolitical risk" for the GCC, "which is a threat to oil prices right now; at the same time, if that risk plays out, it actually sends oil prices higher, which is better for these countries – so there's lots of dynamics at play here."

Whether or not this is appreciated by the GCC is unclear, but the conciliatory and upbeat tone set by them at the June 2 Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna is beginning to ring increasingly false with critics.

Edward Morse, global head of commodities research at Citigroup, remarked,  "I thought it was a Saudi ruse to look nice."

He added, "They didn't have a freeze; they didn't commit to anything; they had a disagreement, which means they papered it over to say something constructive is happening.

"The reality is nothing is happening."

John Kilduff of Again Capital agrees. "I thought it was a show: they're like a family that doesn't want to air their dirty laundry.

"What they're truly benefiting from is the dramatic cut from the United States in output: we're down 850,000 barrels as of today's report, from last year."

Meanwhile, the Saudis have lifted exports by 35 cents a barrel to 60 cents, in its second consecutive monthly price increase; but Saudi Aramco did not impose an expected 50 cent a barrel hike.

Paul Hodges, a special advisor to market data experts Icis, explained the strategy: "This suggests that the Saudis are very keen to maintain their market share, presumably because they are planning to increase production from the Shaybah field during June to around 1 million barrels per day – an increase of 250,000 bpd."

Following the June 2 OPEC meeting, Khalid al-Falih, newly appointed energy minister for the Saudis, tried to assuage fears that the failed summit would cause his kingdom to raise production even further than its near record high numbers by telling reporters, "We will be very gentle in our approach and make sure we don't shock the market in any way."