The International Monetary Fund’s (IMF) latest Regional Economic Outlook Update: Middle East, North Africa, Afghanistan, and Pakistan (MENAP) has indicated that Saudi Arabia, the Middle East’s leading oil producer and behind only Russia and the US in global output, requires a Brent crude price of $87.9 a barrel this year to break even, with a reduction in price of $10 a barrel needed in 2019.
The report suggests that global GDP growth is robust and is expected to hit 3.9% this year, slightly above previous expectations. Stronger outlooks in the euro area as well as China should specifically benefit the MENAP region but the report casts uncertainty on the health of the oil price moving forwards, stating, “The outlook for oil prices remains highly uncertain, largely reflecting supply-side uncertainty. Oil prices grew strongly in the second half of 2017, rising above $65 a barrel in January, supported by the improved global growth outlook, extension of the OPEC+ agreement (limiting oil production through the end of 2018), unplanned outages, and geopolitical tensions. More recently, with rapidly rising US shale production, the price of oil has edged down.”
The IMF believes that in the medium-term oil prices will be “subdued”.
Oil prices have recently hit three-year highs close to $75 a barrel on the back of the significant production cutbacks by a group of 24 nations, led by Saudi Arabia and Russia, which has seen almost 2mn barrels a day of oil production scaled back.
According to the IMF’s figures, the kingdom experienced negative growth of 0.7% in its economy last year but should come out of recession this year posting growth of 1.7%.
The world’s leading oil exporter, Saudi Aramco, is looking to sell off a 5% stake later this year or early in 2019 in a bid to generate around $100bn which is earmarked towards supporting the diversification of the nation’s economy.