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REGIONAL REVIEWS By Tsvetana Paraskova
MIDDLE Energy Review EAST
Middle Eastern oil and gas producers started 2020 with optimism that the OPEC+ oil production cuts were rebalancing and stabilising the market. Oil prices were trading above $65 per barrel in early January and spiked to nearly $70 when Iran’s top General Qassem Soleimani was killed by a US drone attack at the Baghdad airport. While the world was watching the latest flare-up in the US-Iran tension in the Gulf and its potential repercussions on the oil and gas production in the Middle East and on oil prices, the ‘black swan’ event of the year appeared.
By that time, however, oil storage in the world had swelled to record levels. The price of the U.S. benchmark oil, West Texas Intermediate, crashed to below zero at -$38 on 20 April—the first time ever the price of oil had plunged into negative territory.
The Black Swan The coronavirus that first appeared in China quickly spread to other parts of the world and by late Februaryearly March, governments were already imposing travel restrictions and lockdowns in an attempt to contain the COVID-19 infections. Economies reeled from the closure of hospitality services and tourism, air travel restrictions, and non-essential shops closure. Oil and gas demand took a hit from limited travel, increased work-from-home, and slowdown in all industries. Oil prices started to slide in February and the largest oil and gas producers in the Middle East began fretting that declining global oil demand will create a new major glut on the market. The OPEC+ coalition of OPEC – where Middle Eastern producers are the most influential – and a dozen non-OPEC countries led by Russia started bickering about what to do with their production cut pact in light of the crashing global demand.
OPEC+ rift and reconciliation The leaders of the OPEC+ coalition – Saudi Arabia and Russia – broke their three-year-long bromance amid disagreements over how to manage oil supply to the market. Saudi Arabia, the most influential OPEC member and its largest producer, went on an all-out price war with Russia and flooded the market with oil in April, additionally pressuring prices down. The brief but devastating price war in March and early April added to the already grim outlook for oil. Saudi Arabia and Russia, also urged by US President Donald Trump, patched up their differences in April, and agreed in a new pact that OPEC+ withhold a record 9.9 million bpd from he oil market in the hope of stabilising prices.
www.ogv.energy I December 2020
Oil prices started to slide in February and the largest oil and gas producers in the Middle East began fretting that declining global oil demand will create a new major glut on the market
Middle East oil & gas economies hit hard by COVID, price crash All economies in the world suffered from the impact of the coronavirus in the second quarter, but the oil-dependent economies in the Middle East suffered a double whammy from the pandemic-related lockdowns that hit non-oil revenues and from the crash in oil prices that severely constrained oil revenues. The biggest oil and gas producers in the Middle East enacted austerity measures to reduce government expenditures at a time when their oil revenues – a large part of Middle Eastern government budgets – were crashing. The world’s biggest oil exporter Saudi Arabia, for example, tripled the value added tax (VAT) to 15% from 5% beginning in July 2020 and discontinued the cost-of-living allowance for government workers as of June 2020. The Kingdom also halted major infrastructure projects. In the second quarter of 2020, Saudi Arabia’s economy contracted by 7%, with unemployment rate hitting a record high. The flash estimate from the General Authority for Statistics of Saudi Arabia showed that the economy shrank less in the third quarter, but was still in contraction. Gross domestic product (GDP) at constant prices dropped by 4.2% in the third quarter of 2020 compared to the same quarter of 2019. The markets and oil prices stabilised in the third quarter, and oil was trading in a narrow range of around $40 a barrel for most of the period between July and September.
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