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Gulf region to suffer worst recession in 2020 due to oil crash, coronavirus

June 02/2020

MOSCOW (MRC) -- The six-member Gulf Cooperation Council will suffer from the worst recession ever in 2020 due to the oil price crash and the coronavirus pandemic, the Institute of International Finance said in a report June 2, said S&P Global.

The economy of the energy-exporting GCC region will shrink 4.4% in 2020, with Oman having the worst contraction of 5.3% among the six countries. GCC countries are Saudi Araba, Kuwait, UAE, Oman, Qatar and Bahrain. "Shocked by COVID-19 and the plunge in oil prices, the six GCC states will experience their worst recession in history," said the IIF in the report.

"The depth of the contraction for this year and the speed of the expected recovery in 2021 is subject to a high degree of uncertainty." The IIF is more bearish than the International Monetary Fund, which forecast in April the GCC region's economy would shrink 2.7% in 2020, compared with October's forecast of a 2.5% growth.

The GCC's oil economy will contract the most, by 5.3% in 2020 due to the OPEC+ cuts, the IIF said. "Growth could resume in 2021, supported by the partial easing in oil production cuts and gradual pick-up in private sector non-oil activity," the IIF said.

OPEC+ is currently in the midst of a historic 9.7 million b/d production cut that started in May to help soak up excess supply in the market as coronavirus crippled demand. The 9.7 million cut, which is for May and June, will be followed by gradual easing of curbs through to April 2022.

OPEC+ members are due to meet this week virtually to discuss whether to extend the 9.7 million b/d cut beyond June. Saudi Arabia, Kuwait and the UAE are OPEC members, while Oman is a member of the non-OPEC states in 23-member coalition of OPEC+.

IIF is estimating that Gulf countries will need lower fiscal breakeven oil prices to balance their budgets because of spending cuts. The fiscal breakeven Brent oil price for Saudi Arabia is USD75/b, Bahrain (USD77/b), Oman (USD80/b), and Qatar (USD54/b) in 2020. "The significant cut in public spending in the six GCC states could more than offset losses stemming from reduced oil exports," the Washington-based institute said.

Despite the region's spending cuts, the GCC's fiscal deficit is forecast to widen to 10.3% of GDP in 2020 from 2.5% in 2019, assuming an average Brent oil price of USD40/b.

"Brent oil prices are expected to remain in a range of $40-$50 a barrel over the medium term, well below the fiscal breakeven oil prices for the six GCC states," the IIF said. "Under such prolonged oil prices, the deficits could remain large despite continued fiscal adjustment." GCC oil revenue is projected to plunge to USD200 billion in 2020 from USD326 billion in 2019, the institute said.

"Saudi Arabia, Kuwait, Qatar, and the UAE, with large public foreign assets, are better placed to accommodate large deficits than Bahrain and Oman," the IIF said. "While Bahrain can count on financial aid from its neighbors as a cushion against external pressure, Oman is emerging as an increasingly vulnerable spot in the region in light of its mounting debt."

As MRC informed earlier, data collected and tabulated by the American Chemistry Council (ACC) show that with stabilizing activity in China partially offsetting widespread weakness due to COVID-19, global chemicals production fell 1.3 percent in April, an improvement from the 3.3 percent decline in March and 2.1 percent decline in February. During April, chemical production fell in every region. Headline global production was off 5.8 percent year-over-year (Y/Y) on a three-month moving average (3MMA) basis and stood at 110.2 percent of its average 2012 levels.

As MRC informed earlier, Russia's output of products from polymers grew in April 2020 by 11.2% year on year due to quarantine restrictions. However, this figure increased by 3.4% year on year in the first four months of 2020.  According to the Russian Federal State Statistics Service, April production of unreinforced and non-combined films decreased to 107,000 tonnes from 110,400 tonnes a month earlier. Output of films products grew in the first four months of 2020 by 12.5% year on year to 402,800 tonnes.
Author:Anna Larionova
Tags:petroleum products, crude oil, PP, PE, ethylene, propylene, petrochemistry.
Category:General News
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