KUWAIT CITY (AFP) – Energy kingpin Saudi Arabia and other wealthy Gulf states are set to resist pressure to tighten the taps significantly to shore up oil prices as the global economy stumbles, analysts say.
Oil prices have fallen by a quarter since June as excess supply and weaker demand create a glut on world markets, prompting some other exporters to call for cuts in output.
But while curbing production could help to arrest the price decline, it would also leave the Gulf states at risk of losing market share.
Fortunately for the six nations of the Gulf Cooperation Council (GCC) – which sit on 40 per cent of the world’s oil and a quarter of its natural gas – they are flush with cash, analysts said.
“The GCC states are in a strong position to remain steadfast for a few years” if there is a dispute over production, Kuwaiti oil analyst Mussa Maarafi said.
“Saudi Arabia and most Gulf states will not be bothered a lot, at least in the short term” and “will be able to resist pressure to cut production and lose market share”, Maarafi, a former member of Kuwait’s Supreme Petroleum Council, told AFP.
The benchmark US oil price has fallen to levels not seen since mid-2012, while in London Brent North Sea crude is around a four-year low.
The price of US West Texas Intermediate (WTI) stood at around $81 a barrel on Friday while Brent was changing hands for about $86.
Prices had rebounded briefly on Thursday as traders reacted to an unconfirmed report that Saudi Arabia trimmed its crude supplies slightly in September.
But the recovery proved short-lived as markets grew sceptical about the report and fretted over sluggish demand.
Analysts said the Gulf nations were likely to remain relatively sanguine about market conditions.
“I don’t think GCC states will be harmed a lot by the drop in oil prices in the short term,” Saudi economist Abdullah el-Kuwaiz told AFP.
The Gulf nations have based their budgets on an oil price of $80 a barrel or less, said the former senior GCC economic official.
“Most of the GCC states have built a strong fiscal cushion that allows them to bear the consequences” of the price fall, Kuwaiz added.
Four GCC states – Kuwait, Qatar, Saudi Arabia and the United Arab Emirates – together produce 16 million barrels a day, accounting for more than half of the total pumped by the OPEC oil exporters’ cartel.
The other two, Oman and Bahrain, are not members of OPEC.
The revenues of the GCC states, mostly from oil, rose from $366 billion in 2009 to $729 billion last year, according to figures from Kuwaiti investment firm KAMCO investments and the IMF.
As a result, the GCC states have built fiscal reserves worth a massive $2.45 trillion, accumulated from the oil windfall over the past decade, according to the International Institute of Finance (IIF).