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Economic Development and Globalization Division. Financing for Development Section. The impact of the global financial crisis on the world oil market and its implications for the GCC countries. Salaheddin Abosedra, Regional Advisor, ESCWA. Overview.

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economic development and globalization division

Economic Development and Globalization Division

Financing for Development Section

slide2

The impact of the global financial crisis on the world oil market and its implications for the GCC countries

Salaheddin Abosedra, Regional Advisor, ESCWA

overview
Overview
  • Expected impact of the crisis on the oil market conditions (largely based on the EIU estimations):
    • Oil demand
    • Oil supply
    • Oil prices
  • Scenarios for the future of oil prices
  • Outlook for the GCC economies
  • Conclusions
impact on oil market conditions demand
Impact on oil market conditions: Demand
  • Decrease of world oil demand…:
    • It declined by 0.2% in 2008
    • Is expected to decline by 0.4% in 2009
  • …Largely driven by OECD’s demand…:
    • A decline of 2.9% in 2008
    • An expected decline of 1.8% in 2009
  • …While non-OECD demand is expected to grow:
    • By 1.4% in 2009
impact on oil market conditions demand1
Impact on oil market conditions: Demand

Table 1: World oil demand, 2008-2010

In million barrel/day

impact on oil market conditions supply
Impact on oil market conditions: Supply
  • A total cut of 4.2 million b/d in OEPC’s output:
    • A cut of 1.5 million b/d (November 2008)
    • A further cut of 2.7 million b/d (January 2009)
  • An expected growth in non-OPEC production (by 2.7% in 2009)
  • An expected fall in global output (by 1.15% in 2009)
impact on oil market conditions supply1
Impact on oil market conditions: Supply

Table 2: World oil supply, 2008-2010

In million barrel/day

impact on oil market conditions prices
Impact on oil market conditions: Prices
  • The crisis has affected oil prices mainly thru two channels:
    • Many operators have liquidated their positions in the commodity markets fall in oil prices
    • The severe slowdown in world demand fall in oil prices
  • However, the EIU expects a recovery in 2010, with an increase in oil prices by almost 43%
impact on oil market conditions prices1
Impact on oil market conditions: Prices

Table 3: Crude oil prices, 2008-2010

In US dollar/barrel

three scenarios for the future of oil prices
Three Scenarios forthe future of oil prices
  • Scenario 1: Two turbulent years followed by moderate growth in 2011, due to…:
    • Loss of confidence in the stock markets
    • More bank failures
    • Further tightening of financial capital
    • Declining housing prices
  • …And resulting in:
    • A decline in world GDP by 0.4% in 2009
    • A sluggish recovery of 1.5% in 2010
    • Average oil price of $35 in 2009, and $50 in 2010
three scenarios for the future of oil prices2
Three Scenarios forthe future of oil prices
  • Scenario 2: Six turbulent months followed by moderate growth in late 2009, due to:
    • Confidence in the US economic recovery
    • Low oil prices
    • Strengthening of the US dollar
  • The average oil price in this scenario would be $45 in 2009 and $60 in 2010
three scenarios for the future of oil prices3
Three Scenarios forthe future of oil prices
  • Scenario 3: Three turbulent months followed by moderate growth in the second half of 2009
    • It differs from scenario 2 in two aspects…:
      • A less pronounced decline in demand and employment
      • A faster impact of the three positive effects of scenario 2
    • …Resulting in an average oil price of $50 in 2009 and $65 in 2010
three scenarios for the future of oil prices4
Three Scenarios forthe future of oil prices

Chart 1: GCC oil and gas revenues as percentage of total revenues, 2004, 2007

In percentage

three scenarios for the future of oil prices5
Three Scenarios forthe future of oil prices

Chart 2: GCC oil and gas exports as percentage of total exports, 2004, 2007

In percentage

outlook for gcc economies
Outlook for GCC economies
  • A/ Fiscal balance
    • Expected decline in surpluses

Table 5: Budget balance

Percentage of GDP

outlook for gcc economies1
Outlook for GCC economies
  • B/ Economic growth
    • Expected decline in growth rates

Table 6: Economic growth

Percentage change, market exchange rate weights

outlook for gcc economies2
Outlook for GCC economies
  • C/ Inflation
    • Lower expected inflation rates

Table 7: Consumer price inflation

Percentage change

outlook for gcc economies3
Outlook for GCC economies
  • D/ Current account
    • Moderate expected current account surpluses

Table 8: Current account

Percentage of GDP

outlook for gcc economies sensitivity check
Outlook for GCC economies: “sensitivity” check
  • If oil prices were to stabilize at higher levels, this would mean:
    • A moderate decrease in fiscal surpluses
    • A less severe economic slowdown
    • Higher current account surpluses
conclusions
Conclusions
  • The current crisis has a particular feature: it is accompanied with falling oil prices:
    • Thus significantly hurting GCC countries
  • However, the impact would likely be short lived
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