GCC funding needs set to surge up to $263B as oil price crashes

The price of Brent oil needs to flare up to $43 a barrel in 2020 to satisfy the $208 billion financing requirements of the six GCC nations.

The overall financing requirements of the six GCC countries will balloon to $208 billion in 2020, assuming an average Brent price of $43 per barrel as the region sinks into a Covid-prodded deep recession, analysts at a leading Japanese bank said.
Mitsubishi UFJ Financial Group (MUFG) said with every $10 a barrel drop in prices, the GCC countries will have to bear some $72 billion in overall oil export receipt losses.
The bank said in a research note that in a bearish scenario of oil price at $30 a barrel, the GCC funding needs could rise to $263 billion, while narrowing to $152 billion in a bullish situation of $50 per barrel.
Oil prices were down on Monday, following a two-decade low plunge to below $16 per barrel by Brent crude and to a sub-zero level by WTI crude last week on signs that worldwide oil storage is filling rapidly. These dismal signals had triggered concerns that production cuts totalling 9.7 million bpd agreed by Opec+ earlier this month will not fully offset the collapse in demand from the coronavirus pandemic, MUFG analysts said.
"The GCC region continues to grapple with two ultra-bearish shocks - demand-side destruction caused by Covid-19 and supply-side challenges caused by the oil price collapse," said Ehsan Khoman, head of Mena research and strategy at MUFG.
"The GCC region has faced setbacks and shocks over many decades, but seldom has the near-term outlook soured so profoundly," he said.
"Having said that, while the severity of the economic impact from Covid-19 remains highly uncertain, our base case assumes that the lockdowns and other measures will succeed in gradually slowing new infections across the GCC region," Khoman said.
"However, risks to our GCC forecasts remain skewed to the downside, especially if it takes longer than we expect to slow new infections, and we see significant risks of a second wave if policy and social distancing measures are eased prematurely," they said.
The research note said GCC countries would see their GDP contracting by 3.7 per cent from a previous growth forecast of 2.9 per cent.
The MUFG forecast also took into account oil output cuts, the impact of the pandemic on the non-oil economies of the region, and the stimulus provided by GCC governments.

According to International Monetary Fund's latest World Economic Outlook report, the Middle East and Central Asia region is projected to contract by 2.8 per cent in 2020, while the oil exporters in the region, primarily the GCC countries, are expected to post an aggregate negative growth of 3.9 percent.

The IMF has forecast a relatively stronger rebound for the regional economies in 2021, with an overall real GDP growth of 4.6 per cent. The UAE, Saudi Arabia and Kuwait are projected to grow 3.3, 2.9 and 3.4 per cent respectively. Qatar's economy is expected to grow 5 per cent in 2021 while that of Oman is forecast to grow by 3 per cent.

- issacjohn@khaleejtimes.com