Higher oil prices, reforms to buoy economic recovery

In line with the forecast, Oman economy is set for a major recovery led by higher oil prices and reform measures.

The price of Oman oil for delivery in December has reached $83.06 a barrel on Tuesday in trading at the Dubai Mercantile Exchange.

Accordingly, the monthly average price of Oman crude oil for delivery in October now stands at $69.38 a barrel.

Data from the National Centre for Statistics and Information (NCSI) shows that the Sultanate’s oil production reached 232,942,500 barrels until August 2021, compared to 233,575,200 barrels until the end of August 2020.

Global rating agency Moody’s in its estimates last week said that higher oil prices will account for around half of the expected reduction in the fiscal deficit to less than 2 per cent of GDP in 2021 from 18 per cent of GDP in 2020.

The Sultanate’s budget deficit dropped to RO 1.205 billion in the first seven months of 2021 from RO 1.550 billion in the corresponding period in 2020.

The NCSI figures indicated that the average daily production till the end of August 2021 increased by 0.1 per cent to 958,600 barrels, compared to 957,300 barrels in the same period in 2020.

Experts expect the crude prices to reach $90 per barrel on the international market by year-end.

“Oil prices could stay at higher levels in the years to come as demand rebounds while supply remains tight”, said Goldman Sachs’ head of energy research Damien Courvalin.

The oil market is in “the longest deficit we’ve seen in decades’’, and demand will continue to outstrip supply in winter, he said.

On the international market, crude prices made weekly gains of more than two per cent.

Brent crude rose 0.76 per cent to $84.97 a barrel, off Monday’s three-year high above $86. US crude gained 1.16 per cent to $83.4 a barrel. Brent crude prices are up by a third in two months.

During the last one year, the Sultanate has adopted a number of fiscal measures to support the economy, including interest-free emergency loans, tax and fee reductions and waivers, the flexibility to pay taxes in instalments and a Job Security Fund to support citizens who lost their jobs.

The economy is projected to grow by 2.5 per cent after a contraction of 2.8 per cent in 2020 following the dual impact from the Covid-19 pandemic and the collapse in oil prices last year.

The government’s total revenues in the first seven months of 2021 increased by 0.5 per cent to RO 5.214 billion compared with RO 5.188 billion recorded in the same period of last year.

“The fiscal deficit will likely remain small in the medium- term, pointing to a large and likely durable reduction in the government’s gross financing needs to less than 10 per cent of GDP per annum during the mentioned time-period from more than 22 per cent of GDP in 2020”, Moody’s pointed out

Last month S&P Global Ratings revised Oman’s rating outlook to positive from stable, citing its improving fiscal position, progress on reforms and rising oil prices.