Oil is well for the UAE
Data from the US Energy Information Administration on Wednesday showed that crude inventories fell by almost five million barrels to 419.5 million barrels in the week to January 5.
Dubai - Recovery in oil, diversification and tax reform will boost UAE growth
With Gulf oil exporters looking forward to an upbeat 2018, analysts say that the UAE economy has much to gain from a long-term bullish outlook.
Opec member countries and other oil producers began output cuts in January 2017, with the aim of lowering the level of oil inventories in OECD industrialised countries to their five-year average. Russia's decision to join Opec and cut oil production has supported an oil price recovery to over $60 per barrel, while forecasts for 2018 put oil at an average of $57 per barrel, a 5.6 per cent increase over 2017.
Oil prices this year rallied to its highest level since May 2015. A partial recovery in oil prices coupled with an ongoing all-out diversification drive and the landmark tax reform, will help the UAE economy to gain increased momentum in 2018 to register 3.3 per cent growth.
On Thursday, UAE's Minister of Energy and Opec president, Suhail bin Mohammed Faraj Faris Al Mazrouei, said that Opec would be keeping a close eye on oil supply growth in the United States, and that in order to meet oil demand growth, the market needed shale oil supply.
"We are not panicking or see any need to do anything," Mazrouei said at an event in Abu Dhabi.
Speaking during an interview with CNBC, Al Mazrouei noted that the market is "balancing."
"I think there are cyclic events that happen every year on the demand side, and they affect the market. We need to take into consideration that we are in the winter, and typically in the winter the demand is higher," he said. "I have no doubt that the market needs further correction. We still have more than 100 million barrels from the five years average that needs to be taken care of; and the market fundamentals in 2017 have been good, but we are looking forward to see another healthy year of production in 2018."
PVM Oil Associates analyst, Tamas Varga, noted: "Opec is edging ever closer to its desired target of reducing OECD industrial stocks to the five-year average."
Brent crude futures rose 27 cents to $69.47 a barrel at 1039GMT, its highest since an intra-day spike in May 2015. US West Texas Intermediate (WTI) crude futures were at $63.94, up 37 cents to their highest since December 2014. Data from the US Energy Information Administration on Wednesday showed that crude inventories fell by almost five million barrels to 419.5 million barrels in the week to January 5.
In December, the UAE Central Bank estimated GDP growth in 2017 at 1.6 per cent, partly because of cuts in oil output under a global deal among producers. This year, oil output is not expected to be cut further. In October, the International Monetary Fund (IMF) projected the UAE economy would grow 3.4 per cent in 2018, while overall GCC growth is poised to rebound to 2.2 per cent. The UAE's non-oil private sector ended 2017 on a strong note with business conditions improving at the sharpest pace in 34 months in December.
Experts at FocusEconomics note that the UAE economy remains in strong shape heading into the new year. Growth should pick up significantly this year, as the oil sector slowly recovers and the non-oil sector benefits from preparations for the Dubai 2020 World Expo, which should boost fixed investment. GDP is expected to rise three per cent in 2018, which is up 0.1 percentage points from last month's forecast, and 3.3 per cent in 2019.
In early December, Dubai presented its 2018 budget, which contained a significant ramp-up in infrastructure spending as part of the preparations for the 2020 World Expo. The more expansionary fiscal stance was similar to that of the UAE's federal budget approved in November.
Most forecasts show that Abu Dhabi's GDP growth is expected to pick up to 4.7 per cent in 2018 - outpacing the overall UAE's GDP growth rates over the same period respectively, analysts at Knight Frank said in their UAE Market Review and Forecast 2018.
Sultan bin Saeed Al Mansouri, UAE Minister of Economy, said that the outlook for the economy is brightening despite regional and global macroeconomic challenges. "With two years into Expo 2020 Dubai, the economic growth momentum is expected to pick up on the back of a vibrant non-oil sector as the country remains on track to establish a diverse knowledge and innovation-driven economy," he said.