(MENAFN- The Peninsula) Qatar's economy is expected to remain resilient to lower oil prices. Oil prices are widely expected to recover gradually once the current supply glut is absorbed, QNB Group analysis noted yesterday.
Qatar has ample resources to continue implementing its infrastructure investment programme. The sizeable investments should therefore continue to drive non-hydrocarbon growth and lead to further economic diversification.
The fundamental shift that has driven the drop in oil prices in recent weeks has been an upward shift in expectations for a supply glut in 2015, combined with weaker than expected demand, particularly in China. In July, the IEA estimated that the world oil market would be oversupplied by around 0.1 million bpd on average in 2015. However, the IEA's latest report increased its estimate for this supply glut to 1.3 million bpd, driven by both lower expectations for demand and higher expectations for supply.
Firstly, lower expectations for demand in 2015 are the result of weaker than expected global growth. Projections for demand from OECD economies have been revised down by 0.4 million bpd since July, reflecting the recession in Japan and a weaker eurozone recovery. For Emerging Markets, the slowdown in China has led to a downward revision in global demand of 0.3 million bpd. Secondly, on the supply side, expectations for a supply glut are being driven by higher production from Opec countries and stronger US output. According to the IEA, Opec production increased by 0.4 million bpd in Q3, 2014, mainly reflecting resumption in Libya's production.
Meanwhile, production in the US has been rising faster than expected. The IEA has raised its expectations for overall US production by 0.5 million bpd since June. This is mainly the result of new technologies to extract oil from shale rock formations. As a result, total US crude oil production has risen by 67 percent from an average of 5.6 million bpd in 2011 to a projected 9.4 million bpd in 2015.
Prices are expected to recover gradually. This is partly because lower oil prices will stimulate greater demand but also because lower prices will discourage investment in new production.
The impact on Qatar is expected to be small. Non-hydrocarbon real GDP growth is expected to continue accelerating as the government implement its investment programme ahead of the 2022 World Cup. While lower oil prices will inevitably lead to lower hydrocarbon exports and fiscal revenues, the government has ample resources to finance its investment programme. As a result, the overall economic outlook remains positive amid a continued drive to diversify the economy and thus reduce reliance on the hydrocarbon sector.
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