(MENAFN- Muscat Daily) The recent decline in oil prices is not likely to challenge Oman's economy in the short term due to the country's strong external and government asset positions; but sluggish crude prices for longer periods could impact the sultanate's budget balance according to experts.
Brent crude sank to a four-year low below US$83 per barrel on Wednesday on excess supply and weak global economic outlook but rebounded to above US$86 on Friday. Oman crude traded on the Dubai Mercantile Exchange (DME) closed at US$85.13 per barrel on Friday.
'In our view Oman's strong net external and net government asset positions mitigate the risks to the economy from its high dependence on hydrocarbons' said Trevor Cullinan Standard & Poor's (S&P) primary credit analyst based in Dubai.
Cullinan said the stable outlook on Oman's A/A-1 ratings balances S&P's expectation that Oman's strong fiscal and external stock positions will be maintained against risks from weakening economic income fiscal and external flows.
Robin Mills a renowned energy economist and head of consulting at Dubai-based Manaar Energy Consulting sees medium-term Brent prices around US$80 per barrel and possibly lower.
'It will be a challenge for Oman to maintain a reasonably balanced budget under these conditions with oil production costs rising while production gains only modestly or stays flat' Mills said.
Oman crude peaked above US$111 per barrel in June this year but has lost nearly 25 per cent in the past four months. The average 2014 price of Oman crude is still around US$104 per barrel.
Dr Fabio Scacciavillani chief economist with Oman Investment Fund believes the sultanate is in a position to weather the problems of weak oil prices and global economy. 'The previous budgets were based on very conservative oil-price estimates. So there has been an accumulation of financial power to allow Oman to go through phases of weakness in the global economy without much concern.'
Oman enjoys a strong macroeconomic framework and conditions and a solid fiscal position he said.
The entire Gulf region is better prepared for weakening global conditions said Scacciavillani adding 'This is because the main element of fragility the banking sector has been doing fairly well after the hard lessons learned during the 2008 financial crisis.'
Oman's 2014 budget is based on an oil price of US$85 per barrel. Earlier this year the IMF had estimated Oman's break-even oil price at slightly above US$100 per barrel for 2014.
Steffen Dyck senior analyst at Moody's Sovereign Risk Group said although Oman's fiscal break-even oil price is probably higher than budgeted the average Brent price for this year is still around US$105 a barrel. 'Having said that Oman's fiscal break-even oil price is amongst the highest in the GCC and this limits Oman's fiscal headroom and leaves fiscal accounts highly vulnerable to a decline in oil prices' he added.
'But the short-term drop in oil prices does not immediately change Moody's fundamental assessment of Oman's sovereign creditworthiness' said Dyck.
Moody's expects the Oman government to face fiscal deficits from 2015 but not to an extent that undermines the government's financial strength.
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