All eyes on oil price amid concerns of a dip below $80 a barrel

Global demand for crude from Opec, which is responsible for about 40 per cent of the world’s oil supply, may fall to a 14-year low in 2017.

Brent crude declined for a seventh week as the Opec reduced its forecast for demand through 2035. Sheng Li / Reuters

Regional equity investors will be watching oil prices this week as Brent crude hovers just above US$80 a barrel, a barometer for the Arabian Gulf economies.

“We have reached new lows with oil prices,” said Sebastien Henin, the head of asset management at The National Investor, an Abu Dhabi-based investment bank. “If we break the current level, it might trigger a kind of violent reaction from investors and sell-off across regional markets.”

The Abu Dhabi Securities Exchange General Index lost 1.4 per cent over last week, while the Dubai Financial Market General Index declined 3 per cent in the same period.

“We had a bad session at the beginning of the week and then the market recovered a little,” said Mr Henin.

Brent crude declined for a seventh week as Opec reduced its forecast for demand through 2035 amid the US shale boom.

Global demand for crude from Opec, which is responsible for about 40 per cent of the world’s oil supply, may fall to a 14-year low of 28.2 million barrels a day in 2017, its outlook showed. That is 600,000 a day less than last year’s projection and 800,000 below the amount required this year.

"The sharp slide in oil prices since the summer won't cause a major headache for the Gulf states, but it does reinforce the point that these economies are set to lose some steam over the coming years," Capital Economics said in a note.

“Falling oil revenues mean that government spending won’t be as supportive of growth as it has been in recent years. At the same time, another boom in oil production seems unlikely in light of rising supplies from elsewhere, notably the US,” said the London-based research house.

But declining crude prices should bode well for the oil importing economies of Egypt, Morocco and Tunisia, Capital Economics said, by “reducing twin budget and current account deficits”.

Global markets stabilised on Friday, as regional equity markets were closed for the weekend.

In the US, the Dow Jones Industrial Average rose 0.1 per cent to 17,573.93 points, while the S&P500 added 0.03 per cent to 2,031.92 points. The London-based FTSE 100 gained 0.25 per cent to 6,567.24 points. In Asia, the Nikkei 225 Index rose 0.5 per cent to 16,880 and the Hang Seng slipped 0.4 per cent to 23,550.24. Brent crude inched 0.6 per cent higher to $83.39 and gold jumped 2.3 per cent to 1169.80 points.

"If you look at international equity markets, whether its monetary policy from the European Central Bank or other data, a lot of things have been clarified and the volatility has decreased," Mr Henin said. UAE and Qatari stocks have become more sensitive to global equity trends after the international index compiler MSCI incorporated the shares into its Emerging Markets Index.

* with Bloomberg News

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