Recent dip in oil prices not a major concern for the Gulf

The recent drop in oil prices, from around US$56pb at the start of March to just over US$51pb at present, is unlikely to be a major cause for alarm in the Gulf. For one thing, oil prices are still above their average of US$45pb recorded last year. Meanwhile, after a couple of years of deep fiscal austerity, most countries are now in a much better position to confront a prolonged period of low oil prices. Twin budget and current account deficits have started to narrow, reserves are still large and debt levels are low. That said, lower oil prices have raised the possibility of an extension to OPEC’s agreement to cut oil production, which is due to expire at the end of June. Recent comments from Saudi Arabia’s Oil Minister, Khalid al-Falih, suggest that opposition to an extension to the deal has eased. But there are still many hurdles to overcome, including concerns over compliance among the non-OPEC countries that signed up to the deal (notably Russia) and rising shale production in the US.