Fitch: Abu Dhabi well placed to weather oil prices at about $50 a barrel

As oil producers struggle to cover spending amid forecasted oil prices floating around US$50 per barrel, a new report says Abu Dhabi is among the three Gulf producers set to best weather the storm.

The ratings agency Fitch says Abu Dhabi, Kuwait and Qatar are comfortably placed given low fiscal break-even prices and large sovereign wealth funds that have mostly invested their money abroad. “Their external assets are sufficient to cover decades’ worth of current fiscal deficits and maintain their US dollar pegs,” the agency said.

Fitch is forecasting oil prices to average $52.50 per barrel this year, up 16 per cent from $45.10 per barrel last year.

The break-even price is a calculation using the minimum price that is needed to meet spending requirements and balance budgets. It helps to drive investment decisions as well as indicate where economic downturns might arise.

Kuwait has the lowest break-even price for this year at $45 per barrel, says Fitch, with Qatar ($51) and Abu Dhabi ($60) coming in next-lowest in the Middle East. The UAE has remained resilient amid the oil slump by trimming spending in several areas, such as fuel subsidies.

BNP Paribas expects the UAE’s fiscal situation to be positive this year, and is forecasting a lower break-even price than Fitch. “We expect the break-even price for the UAE to be $56, and that should be below the whole market price,” said Pascal Devaux, BNP Paribas senior economist covering Mena.

Fitch says 11 of the 14 major exporters in emerging Europe, the Middle East and Africa will continue to post fiscal deficits.

BNP’s Mr Devaux notes: “The situation in Saudi Arabia – even if we have an increasing price – there’s still a cut in oil production so we expect the country’s fiscal deficit to be rather large at 8.4 per cent of its GDP this year.”

The kingdom is working to introduce reforms, but there are fears that these policies will only be temporary. Fitch said that fiscal adjustment has generally slowed as oil prices have risen and may be cancelled or postponed.

“Cuts to government capital spending and public sector pay restraint may also prove transi­tory, as much of the private sector growth in the GCC has traditionally depended on government spending while the public sector has been the employer of choice for rapidly growing local populations,” Fitch said. “Economic diversification efforts will take years to meaningfully contribute to employment and revenues.”​

The international benchmark Brent crude opened at a month high in trading yesterday at $54.76 per barrel.

Fitch’s other break-evens for this year are: Congo, $52; Iraq, $61; Azerbaijan and Gabon, $66; Kazakhstan, $71; Russia, $72; Saudi Arabia, $74; Oman, $75; Angola, $82; Bahrain, $84; and Nigeria, $139.

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