The world’s top LNG exporter Qatar is pumping just over half a million barrels of oil per day, but has been staunchly supporting OPEC’s production cuts aimed at rebalancing the market and lifting crude oil prices. Since the cartel’s November 30 deal to coordinate a reduction of supply, oil prices have steadily held above US$50 per barrel, stuck in a narrow band of up to US$56, with U.S. shale resurgence putting a lid on prices.
Still, Qatar is “very comfortable” with prices at current levels, to the point that it may see its budget deficit this year nearly disappearing, after having run a rare deficit last year on the back of the prolonged low oil prices. The country may not have to resort to tapping bond markets this year in order to finance gaps in its budget, Finance Minister Ali Al Emadi said in Doha earlier this week.
Unlike other oil-and-gas-exporting economies, Qatar is not drawing down its huge sovereign wealth fund to finance the budget deficit. It’s using the Qatar Investment Authority to invest abroad, with one of the latest deals being teaming up with Glencore to buy 19.5 percent in Russia’s oil giant Rosneft.
Qatar has already raised a total of US$14.5 billion of external debt and issued US$2.6 billion of domestic bonds and Islamic bonds, the so-called sukuk, the International Monetary Fund (IMF) has estimated.
But with oil prices staying currently well above Qatar’s conservative 2017 budget assumption of US$45 per barrel, “we may not issue a bond this year given where oil prices are – right now we are close to break-even,” Reuters quoted Emadi as saying.
So Qatar’s support to the OPEC deal is starting to pay off. The comments by Qatari officials suggest that higher oil prices have started to ease the fiscal burden on the strained budgets of oil-exporting nations as early as a month into OPEC’s production cuts.
In the cartel’s coordinated action to reduce supply by around 1.2 million bpd to 32.5 million bpd between January and June, Qatar has committed to shave off 30,000 bpd and keep a production level of 618,000 bpd in the first half this year.
Just days after 11 non-OPEC nations joined the global effort to rebalance the markets with a pledge to cut 558,000 bpd combined, Qatar’s state-held Qatar Petroleum said that Qatari oil production levels would be reduced and reaffirmed its “commitment to fulfil the State of Qatar’s support of OPEC’s recent decision”.
Even if support to the cuts is strong, not only from Qatar but also from OPEC’s largest producer and de facto leader Saudi Arabia, as well as Kuwait – and even if compliance is estimated at (surprisingly high) 91 percent – the cartel may need to extend the period of the cuts beyond June, the oil ministers of Qatar and Iran said earlier this week. The oil market may rebalance in the third quarter, Qatar’s Oil Minister Mohammed Al Sada said, adding that “it’s too early to make a judgment”.
Speaking to Bloomberg, Al Sada said that the committee overseeing this cut compliance is expected to unveil on February 17 its first production figure estimate for January. The committee would be using six sources of data to calculate production levels, the minister added.
Regarding the U.S. shale rebound and its implications for the oil market supply, Al Sada appears certain that healthy global demand can accommodate higher shale output.
“With that continuous demand increase I think all available oils are going to be accommodated,” Sada told Reuters on Wednesday.
Still, until high global inventories levels draw down, additional supply from U.S. production would cap oil prices and offset further price gains. So OPEC’s possible extension of the six-month output cut – with a decision expected in May – would most likely include considerations not only about oil prices, but also how much U.S. shale has regained and recovered.
By Tsvetana Paraskova for Oilprice.com