Oman oil price spike to shore up sentiment

Muscat, Jan 13 - A steep 20 per cent rally in the price of the Oman Oil Future Contract over the past fortnight has lifted the benchmark above the $58 per barrel oil price assumption adopted by the government for 2019 State Budget — a spike that promises to bring added cheer to the economy at the start of the year.
Oman’s benchmark crude traded at $61.54 per barrel on the Dubai Mercantile Exchange (DME) on Friday, January 11, 2019, the highest it has reached since international oil prices suffered a steep drop last month — the result of a combination of geopolitical tensions and market factors. The price of the Oman Oil Futures Contract has since climbed more than $11 per barrel since it plummeted to a low of $50.01 per barrel on December 26, 2018.
The sharp rally, early on in the New Year, is good news for the Omani economy, according to Muscat-based analyst Alkesh Joshi, Partner — Business Tax Advisory Services at EY Oman.
“Any oil price realized above $58 per barrel contributes significantly towards managing the fiscal deficit, so this is a very position sign,” said Alkesh. “Coming as it does early on in the year, if the price remains above the oil price benchmark of $58 per barrel on which the 2019 Budget is based, then it will have a positive effect because the futures contracts are for delivery two months in the future. Accordingly, trade in January will be concluded in the month of March.”
Speaking to the Observer, Alkesh said the positive spike in the oil price will also help negate last month’s dramatic correction that saw global oil prices fall to their lowest in two years.
Despite the sharp volatility in oil prices, which have made forecasts as well as price trends by economists and analysts almost impossible, prices are expected to remain largely range-bound between $60 and $65, said the expert.
Local investors and businesses are also expected to take heart from the oil price rally. “As 75 per cent of budgeted revenues will come from the hydrocarbon sector, the oil price spurt will boost sentiment and confidence of local businesses, who are now assured that the government will continue to invest in the economy. Overall, this rally will have a positive impact on the local economy,” he added.