Oman crude hike to ensure stability

Muscat, Sept 26 – Oman crude saw one of the highest single day increases on Wednesday, with financial pundits saying it is a “positive sign” in terms of economic recovery. Oman crude for November delivery closed at $88.96 on the Dubai Mercantile Exchange, an increase of $6.53 from the previous day. On Tuesday, it had touched the highest level in the last four years. Oman crude traded close to $82, an increase of $2.51 from the previous day. Industry sources have indicated that prices are expected to remain at the $70-80 levels, which are ideal for the Oman market.

“It is a bit too early to see tangible results in terms of job creation, oil production activity and improved market confidence. This will depend on oil prices staying at the current levels,” said an analyst. Speaking to the Observer, Joice Mathew, head of research, United Securities, said, “As Oman’s official selling price for term sales is calculated as monthly average of the DME Oman daily settlements, the rise in oil price is, even for a single day will have a bearing on the selling price, and ultimately on the government revenues.”

He added, “Our budget envisaged an average oil price of $50 for the year. We have achieved 60 per cent of budgeted oil revenue in the first half of the year, and our estimates suggest that by the end of this month, the government will secure around 95 per cent of the budgeted oil revenue for the full year.” The average oil price until the end of August was $64, more than 30 per cent higher than what was budgeted at the beginning of the year, he said.

Crude oil revenue accounts for 51 per cent of government’s budgeted revenue, while gas revenue is expected to contribute around 20 per cent of government revenue in 2018, which makes the fiscal breakeven price of crude oil close to $108, a very long shot from the current levels. Mathew said, “The additional revenue from the higher-than-budgeted oil price should help in stabilising public finances and thereby the economy as a whole.” “This is the short-term effect of high oil prices. In the longer term, stable government finances coupled with sustained levels of higher oil prices should give the government increased confidence levels for hiking capital expenditures and infrastructure investments, which will result in increased economic activity.”

Vinod Nair