Dependent as it is on petroleum, economies in the Middle East have been especially buffeted by the COVID-19 pandemic. And it could take more than a year to recover, a speaker at an industry conference said last week, even though the end of the pandemic may be in sight.
The oil industry was one of the hardest hit by the pandemic, especially during its early stages. Fuel consumption plummeted in the spring when governments first imposed lockdowns on many types of businesses and advised people to stay at home. Refiners had to cut back quickly on operations, which slashed crude oil demand and temporarily reduced prices to negative levels.
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This staggered oil companies around the world but was particularly tough on the Middle East, where many countries depend heavily on oil revenues, James Dennis, a senior editor for ICIS covering crude oil markets in Asia-Pacific and the Middle East, said Dec. 2 during the ICIS Pan American Base Oils & Lubricants Virtual Conference. The region produces 32% of the world’s crude oil and is responsible for 40% of crude exports, he noted.
Since summer prices for Brent crude futures have stabilized in the range of U.S. $40 to $50 per barrel, still some $20 less than at the start of 2020. Of course that hurts countries that rely a lot on revenues from the industry. Dennis said the government of Saudi Arabia receives 70% of its revenue from oil and that it needs oil to be priced at $80/bbl in order to balance that budget.
Of course price is just part of the problem for such countries and oil companies. Consumption is also down. The International Energy Agency has forecast that global crude consumption will fall 8% or 9% this year to 91 million or 92 million barrels. The agency expects demand to rebound next year, but only 6%, Dennis said.
Middle Eastern exports are forecast to fall 7% this year but to rebound only 3% to 4% in 2021, he added.
Preliminary information from vaccine trials has buoyed hope of the pandemic being stamped out in 2021, which would benefit all regions and most industries. The Middle East’s oil industry has already received some help from early economic recovery in China, where gross domestic product is expected to grow by more than 2% this year. China is the largest importer of Middle Eastern crude, and those volumes have already rebounded. India is the Middle East’s second-largest customer, though, and it continues to suffer from heavy COVID-19 caseloads and aggressive containment measures.
Collective GDP in the Middle East was falling even before the pandemic – it decreased nearly 2% in 2019 due to low oil prices – and is forecast to slide another 8.3% this year, Dennis said.
Oil producing nations have helped maintain crude prices during the second half of this year by adhering more closely to commitments to limit production. But the size of cutbacks is scheduled to decrease in the new year.
“Fears of a supply overhang are growing, especially after OPEC cuts are further reduced to 5.8 million b/d in January 2021,” Dennis said.
That could exert downward pressure on prices and counteract a rebound in demand if economies recover as the pandemic wanes.