UAE economy diverse enough to weather the oil-price slump

IMF says excess spending has been curbed sufficiently and budget reduced so drag on growth 'can be minimised'.

The UAE has the diverse economy and budget discipline needed to weather lower oil prices, the IMF said, as Dubai crude slumped below $80 a barrel for the first time in four years.

The Arabian Gulf nation with about 6 per cent of global crude reserves has been trimming government spending as economic growth slows, enabling it to balance the budget at a lower price for oil, its main export, according to Harald Finger, head of the IMF’s mission to the country. Dubai crude, a regional benchmark, fell yesterday as much as 1.9 per cent to $79.27, the lowest since October 22, 2010.

Global oil prices fell into a bear market last month as demand growth slowed while supply rose from the US, Russia and members of Opec. The price drop spurred speculation that Opec may cut production in an effort to boost prices when members meet on November 27 in Vienna. The UAE needs an average oil price of $66.50 a barrel this year to cover government spending, down from $92.40 in 2011, according to IMF data compiled by Bloomberg.

“There is no need now to immediately adjust fully for the drop in oil revenue,” Mr Finger, a deputy division chief for the Middle East at the IMF, said yesterday in an interview in Dubai. The government has already curbed excess spending and reduced its budget so the country “can minimise the drag on growth” from falling prices, he said.

Dubai crude is an indicator of income for Arabian Gulf oil producers including Saudi Arabia, the region’s largest, which use it as a benchmark for their export prices.

Dubai oil is freely traded, allowing the market to set the price, unlike crude from Saudi Arabia and some other Gulf countries that must be consumed by its first buyer. Most of the output from Abu Dhabi, the UAE’s largest emirate, is sold with this restriction.

Omani crude, which also slumped below $80, is another freely traded crude used as a regional benchmark. Saudi Arabia, Iran, Iraq and Kuwait price their exports to Asia at a premium or discount to a monthly average closing price of Oman and Dubai grades together.

Abu Dhabi, which holds most of the UAE’s crude and natural gas reserves, sets the prices for its crude retroactively, informing buyers of the per-barrel cost for shipments made the previous month. State-owned Abu Dhabi National Oil Company (Adnoc) bases its prices on conditions including the price of crude benchmarks and the number of cargoes sold.

Adnoc cut Murban crude, the emirate’s main grade, to $87.35 a barrel for October, it said by email yesterday. That’s the lowest since November 2010, according to data compiled by Bloomberg.

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