Crude at $45 may cut deficit

By Samuel Kutty — MUSCAT: Dec. 12: The rebound in price coupled with the projected average $45 a barrel of oil is expected to contain Oman’s budget deficit in the coming years. Currently Oman crude is hovering above $54 per barrel and is expected to sustain the uptrend following last week’s production cut agreement. According to sources, the draft budget for 2017 has set average oil price at $45 without any additional revenues next year. Dubai Mercantile Exchange (DME) on Monday said that Oman oil price (February delivery) closed at $54.80, up $2.62 over Friday’s closing price of $52.18.  Monday’s closing price is also the highest for Oman crude this year.

The average price of Oman oil (December delivery) stood at $49.18, $5.78 per barrel higher than November delivery.

“A spending cut of five per cent, in all likelihood, will be included”, said the source.

Minister Responsible for Financial Affairs Darwish bin Ismaeel al Balushi last week had a closed door meeting with Majlis Ash’shura members on the 2017 general budget.

Experts are of the opinion that the rise in the oil price will help the Sultanate reduce its dependence on international borrowing.

According to Lo’ai Bataineh, Chief Investment Officer at Oman Arab Bank, $45 per barrel per oil calculation is fair.

“I believe $45 per barrel oil will be a good rate to be considered subject to trimming certain expenditures which are not related to development and will not have negative impact”, he said.

The reliance on international financing has been a big shift for Oman.

Now with improved oil price and ongoing reforms the country is expected to post higher growth next year, said another analyst with a local bank.

“With many large oil exploration and production projects put on hold worldwide, he said oil supply is not expected to increase sharply soon, while a rebound in demand will help balance oil markets”, he said.

Oman’s oil production averaged one million barrels per day for the first time in history in 2016.

The new agreement calls for a 4.5-per cent reduction in Oman’s total oil output, valued at almost RO 900 million, and will begin in January 2017.

“The Omani economy which has been experiencing challenges of low oil prices, has undertaken policy measures to expedite economic diversification and to augment non-oil revenues,” the analyst said.

However, the deficit has come in higher than projected, totalling RO 4.4 billion in the first nine months.

The Ninth-Five-Year Plan envisages average oil production to be 990,000 barrels a day.

Now with the new agreement reached among non-Opec countries, Oman will cut oil production by 45,000 barrels a day.

While plan targets growth of not less than 3 per cent per annum, the same as in the Eighth-Five-Year Plan, it projects an average annual deficit of RO 2.96 billion. As a percentage of total revenue, the deficit is expected gradually to reduce from 38 per cent in 2016 to 25 per cent in 2020.