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Positive indicators: Price of Oman crude averages $55.6/b this year, up from $50/b during Jan – Aug 2020
In cheery news for the Omani economy, coming against the backdrop of the devastation unleashed by Cyclone Shaheen earlier this week, the Ministry of Finance announced on Thursday that state revenues climbed 13.9 per cent to RO 6.331 billion during the first eight months of this year, ending August 31, 2021, versus revenues of RO 5.554 billion for the corresponding period of 2020.
The budget deficit, a key indicator of the overall health of the economy, declined by a hefty 46.3 per cent to RO 1.052 billion this year, down from RO 1.957 billion for Jan – August 2020. Total expenditure, however, grew 1.7 per cent to RO 7.382 billion this year, against an expenditure of RO 7.511 billion for the corresponding period of 2020.
Fuelling the jump in revenue and, in turn, the decline in the deficit, was a 11.2 per cent increase in the average price of Omani crude, the export of which remains a principal source of revenue for the Omani government. The price of Omani crude averaged $55.6 per barrel during the first eight months of this year, up from an average of $50 per barrel for the corresponding period of 2020.
Average crude production however dipped 0.8 per cent to 955K per day this year as opposed to an output of 963K per day in 2020, a difference attributable to Oman’s adherence to production curbs agreed by the OPEC+ alliance to help shore up sagging international oil prices.
Significantly, the price average of $55 per barrel recorded during the Jan – Aug 2021 period is well above the assumed price of $45 per barrel adopted by the government for forecasting revenues in the 2021 State Budget.
However, with the price of Omani crude having since returned to levels last seen three years ago, well before the oil price collapse of 2019 and the pandemic, the outlook for a stronger uptick in revenue and the simultaneous shrinkage of the deficit, grows even brighter. Still, with the government having racked up significant debt over the past several years, it will be a while before the economy is completely out of the woods, say experts.
On Wednesday, Omani crude surged to $80.46 per barrel in trading on the Dubai Mercantile Exchange (DME) – a level last seen in October 2018. The spike was in trend with multi-year highs recorded by international crude benchmarks in response to OPEC+’s decision to stay the course in its gradual ramp-up of production in the face of demands by some producers for an accelerated easing of curbs.
The price of Oman crude however slumped to $77.22 per barrel on Thursday in trend with international oil prices on news of swelling crude inventories in the United States.
Significantly, Thursday’s update - featured in the Ministry’s latest bulletin of the Sultanate’s fiscal performance – validates upbeat outlooks for Omani economy issued recently by the International Monetary Fund (IMF) and S&P Global Ratings.
In revising its outlook for Oman from stable to positive, S&P cited, among other criteria, buoyant oil prices as a key contributory factor. “We expect real GDP to grow by 1.7 per cent this year and then accelerate to 3.1 per cent on average in 2022-2023 as oil and gas production ramps up after OPEC+ production limits are eased,” the international ratings agency said in a report issued last week.
“We assume an average oil price of $60 per barrel (/bbl) in 2021 (based on realized sales of Omani crude until October) and 2022 and $55/bbl from 2023, up from $42/bbl in 2020. Given the concentrated nature of Oman's economy—hydrocarbon products comprise about 40 per cent of real GDP, 60 per cent of goods exports, and above 70 per cent of fiscal receipts--the country remains sensitive to movements in oil prices in either direction,” it noted.
Meanwhile, the Ministry of Finance also announced that it has settled payments owed to the private sector to the tune of RO 823 million as of September 30, 2021. It includes RO 247 million in payments made through the e-financial system during the third quarter of this year, the Ministry noted.
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