Crude prices: Syrian conundrum & bearish trends

As the immediate threat of a US-led campaign against Syria recedes, some semblance of decidedly bearish calm has returned to the oil markets. The last two weeks have seen steady declines in benchmark prices as the Assad regime agreed to a Russian-led initiative aimed at opening up the Syrian chemical weapons arsenal to international inspection. Jury is still out on whether it will work, but that’s enough to keep the oil market bulls in check.

 

Supply-side analysts also took comfort from the improving situation in terms of Libyan production. However, an appreciable caveat needs to be taken into account here. Libya’s oil production has recovered, but only to about 40% of its pre-war rate of 1.6 million barrels per day (bpd), and is currently averaging no more than 620,000 bpd, according to the government.

 

A further lull in violence in Egypt has helped calm markets as well. Much of the market fear in this context, as the Oilholic noted from Oman a few weeks ago, was invariably linked to the potential for disruption to tanker traffic through the Suez Canal which sees 800,000 barrels of crude and 1.5 million barrels of petroleum distillate products pass each day through its narrow confines.

 

Furthermore, it wasn’t just the traffic between the Red Sea and the Mediterranean Sea via the canal that was, and to a certain extent still is, an area of concern. Disturbances could also impact the Suez-Mediterranean pipeline which ferries through another 1.7 million bpd. Syria, Libya and Egypt aside, Iran is sending conciliatory notes to the US for the first time in years in its nuclear stand-off with the West.

 

Factoring in all of this, the risk premium has retreated. Hence, we are seeing are near six-week lows as far as the Brent forward month futures contract for November goes. There is room for further correction even though winter is around the corner. On a related note, the WTI’s discount to Brent is currently averaging around US$5 per barrel and it still isn’t, and perhaps never will be, sufficiently disconnected from the global geopolitical equation.

 

Shame really, for in what could be construed further price positive news for American consumers, the US domestic crude production rose 1.1% to 7.83 million bpd for the week that ended September 13. That’s the highest since 1989 according to EIA. At least for what it’s worth, this is causing the premium of the Louisiana Light Sweet (LLS) to the WTI to fall; currently near its lowest level since March 2010 (at about $1.15 per barrel).

 

Moving away from pricing matters, the Oilholic recently had the chance to browse through a Fitch Ratings report published last month which seemed to indicate that increasing state control of Russian oil production will make it harder for private companies to compete with State-controlled Rosneft. Many commentators already suspect that.

 

Rosneft's acquisition of TNK-BP earlier this year has given the company a dominant 37% share of total Russian crude production. It implies that the state now controls almost half of the country's crude output and 45% of domestic oil refining.

 

Fitch analyst Dmitri Marinchenko feels rising state control is positive for Rosneft's credit profile but moderately negative for independent oil producers. “The latter will find it harder to compete for new E&P licences, state bank funding and other support,” he adds.

 

In fact, the favouring of state companies for new licences is already evident on the Arctic shelf, where non-state companies are excluded by law. However, most Russian private oil producers have a rather high reserve life, and Marinchenko expects them to remain strong operationally and financially even if their activities are limited to onshore conventional fields.

 

“We also expect domestic competition in the natural gas sector to increase as Novatek and Rosneft take on Gazprom in the market to supply large customers such as utilities and industrial users. These emerging gas suppliers are able to supply gas at lower prices than the fully regulated Gazprom. But this intensified competition should not be a significant blow to Gazprom as it generates most of its profit from exports to Europe, where it has a monopoly.”

 

There is a possibility that this monopoly could be partly lifted due to political pressure from Rosneft and Novatek. But even if this happens, Marinchenko thinks it is highly likely that Gazprom would retain the monopoly on pipeline exports – which would continue to support its credit rating.

 

Continuing with the region, Fitch also said in another report that the production of the first batch of the crude stuff from the Kashagan project earlier this month is positive for Kazakhstan and KazMunayGas. The latter has a 16.8% stake in the project.

 

Eni, a lead member of North Caspian Operating Company, which is developing Kashagan, has said that in the initial 2013-14 phase, output will grow to 180,000 bpd, compared with current output from Kazakh oilfields of 1.6 million bpd. Kashagan has estimated reserves of 35 billion barrels, of which 11 billion barrels are considered as recoverable.

 

The onset of production is one reason Fitch expects Kazakhstan's economic growth rate to recover after a slight slowdown in 2012. Meanwhile, KazMunayGas expects the Kashagan field to make a material contribution to its EBITDA and cash flow from next year, the agency adds.

 

Increased oil exports from Kashagan will also support Kazakhstan's current account surplus, which had been stagnating thanks to lower oil prices. However, Fitch reckons foreign direct investment may decline as the first round of capital investment into the field slows.

 

What's more, China National Petroleum Company became a shareholder in Kashagan with an 8.3% stake earlier this month. Now this should certainly help Kazakhstan increase its oil supplies to China, which are currently constrained by pipeline capacity. Watch this space! That’s all for the moment folks! Keep reading, keep it ‘crude’!

 

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To email: gaurav.sharma@oilholicssynonymous.com
 

© Gaurav Sharma 2013. Photo: Oil production site, Russia © Lukoil

Profiling Oman's E&P and its wider market impact

The Oilholic has always been intrigued by Oman's oil & gas industry. The oil storage tanks atop the Al Wattayah cliffs of the Hajar Mountain range (see left) dominate the scenery behind Muscat and Muttrah's natural harbours. They also bear a silent but impactful testament to black gold's importance in this part of the world.

In a regional context, and from a geopolitical standpoint, Oman's 5.5 billion barrels of oil equivalent (boe) in proven reserves are the largest for any non-OPEC country in the Middle East. Admittedly, in this part of the world, there aren't that many non-OPEC players of significance in any case, let alone one with such a proven reserves position.

However, given that Oman does not have as much in terms of reserves relative to its regional oil exporting peers, is precisely why IOCs get better deals when it comes to oil & gas prospection here. The Petroleum Development Oman (PDO) holds around 92% of Oman's oil reserves. Aside from the government's 60% stake in PDO, Shell is the junior partner with 34%. Total (4%) and Partex (2%) make up the rest with minority stakes.

For all of that, it's actually Occidental Petroleum which has the largest operations of any IOC in Oman and is the country's second largest oil-producer! Chinese presence here is the shape of CNPC, while BP, Repsol and KoGas are meaningful industry participants as well.

The country has come a long way from signing its first export consignment of 543,800 barrels of the crude stuff delivered F.O.B Mina-al Fahal for a purchase price of US$1.42 per barrel (to Shell) way back on that historic date of August 8, 1967. PDO archives reveal that momentous invoice which was the harbinger of things to come (see right, click to enlarge).

The journey so far has not been without hiccups. A lot of soul-searching ensued when production, which at one point was above 950,000 barrels of oil equivalent per day (boepd) in the late 1990s, plummeted to an all time low of 714,000 boepd in 2007. However, initial anxieties about a general decline in oil & gas production have been replaced by renewed vigour and pragmatism with output rising steadily if not spectacularly in recent years.

Two key decisions taken by the administration of Sultan Qaboos bin Said Al Said have seen Oman turn a corner. As the Oilholic noted in an earlier blog post, the first move was to diversify Oman's economy away from oil & gas and promote transport, cargo & logistics, regional banking and, of course, tourism sectors. The plan was dubbed "Vision 2020" and initiated in 1998, when the oil price dipped below $10 per barrel.

The second move, kick-started in 2002, saw a strategic increase in petrodollars pumped into boosting oil production via enhanced recovery mechanisms at ageing oilfields. Miscible gas injection, thermal injection and polymer flooding were the techniques which found favour. Of these, thermal has proved most popular being deployed at Mukhaizna, Marmul, Amal-East, Amal-West and Qarn Alam fields. However, the PDO is employing traditional water-flooding at Yibal; the largest oilfield in the country.

The changes are tangible. According to the US EIA, Oman's average production came in at 923,500 boepd in 2012. Updating the figure, a PDO spokesperson told the Oilholic that H1 2013 production was in the region was around 944,200 boepd.

"All said medium term production expectation of over 930,000 boepd based on current investment and undertaking would be a realistic supposition for next few years," he added. The country's Petroleum Investments Directorate at the Ministry of Oil & Gas breaks this up as 900,000 barrels per day (bpd) of the crude stuff and 3.3 bcm of natural gas. The figure is based on 2012 data from seven – mainly onshore – production blocks.

PDO also looks set to pump additional funds, above and beyond what was budgeted in 2002, into improving production even further. Despite the best efforts of yours truly, a reliable figure was not forthcoming. But if one was to take a cumulative average of what local analysts say – we'd be looking at a minimum spend in the region of $6 billion per annum for the next 10 years.

While onshore prospects have historically been Oman's mainstay, as the Oilholic noted an earlier blog from Khasab – Bukha's offshore prospects are noteworthy. Norwegian independent upstart DNO International's 'Block 8' prospection off the Musandam coastline could well and truly shake things up. Some say it already is! The block is yielding 8,000 bpd, but reliable local sources say that once its full potential is realised, we could be looking at 20,000 bpd.

The big question is – could fresh Omani prospection coupled with the ongoing enhanced recovery programme – push production above the psychologically uplifting and headline grabbing figure of 1 million bpd?

Based on empirical and anecdotal evidence, thoughts of market commentators in Muscat and Abu Dhabi and the Oilholic's own calculations – sadly no! However, Omani production will be tantalisingly close to the magic mark as early as Q1 2014, and this blogger would be delighted for the country were he to be proved wrong, however briefly.

Regardless of the final figures, what does it mean and for whom? Almost 760,000 bpd would be exported by 2014, according to the government. The Far East seems to be the preferred destination for Omani Crude – with China, Japan and South Korea being the buyers. Since 2005, India is also looking towards Oman, more so, since last year, as the availability of Iranian crude remains sanction hit. 

Well, it is nearly time to call it a day here in Muscat. But not before the Oilholic leaves you with a view of His Majesty Sultan Qaboos' Royal Yacht - its one magnificent floater (see above left) ! Additionally, see below, from clockwise from left to right – the Royal Opera House, a very Omani sunset, Muscat's answer to London’s "Boris Bikes" and the Marina Bandar Ar Rawdah. It's been a thoroughly memorable visit to this wonderful country, full of warm, gracious and welcoming people.

One is truly grateful to professionals and commentators from PDO to BankMuscat, from the Oil & Gas Exhibition Centre to local guides who spared their valuable time to discuss various aspects of Oman's oil & gas industry.

However, away from Oman and just before boarding the flight to London Heathrow, one has a bit of reading material to flag-up. First, here's a brilliant column in the FT by Victor Mallet discussing travails of the Indian Rupee, in the current climate of foreign investors wanting to pull their money of emerging markets. The second is a BBC report about Egyptian officials saying they had foiled an attack aimed at disrupting shipping in the busy Suez Canal. This is seriously spooky with on-going problems in Syria, Libya and Egypt itself.

To put things into their proper context, the Suez Canal sees 800,000 barrels of crude and 1.5 million barrels of petroleum distillate products pass each day through its narrow confines between the Red Sea and the Mediterranean Sea. Furthermore, it's not just the canal that should be of concern.

With nefarious characters lurking around, another supply route of concern might be the Suez-Mediterranean pipeline which ferries through 1.7 million bpd. Disruption to either could see the risk premium on Brent be hit for six! That's all from Oman folks! Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.

 

To email: gaurav.sharma@oilholicssynonymous.com
 

© Gaurav Sharma 2013. Photo 1: Oil storage tanks atop the Al Wattayah cliffs of the Hajar Mountain range, Muscat, Oman. Photo 2: Invoice of the first consignment of Omani oil exports, 1967. Photo 3: Sultan Qaboos’ Royal Yacht, off Muttrah coast, Oman. Photo 4: Clockwise from left to right – Royal Opera House, Sunset in Muscat, the city’s answer to London’s "Boris Bikes" and the Marina Bandar Ar Rawdah , Oman © Gaurav Sharma, August, 2013.

On Bukha’s oil & the beauty of Khasab

The Oilholic finds himself roughly 27 km west of Khasab, here in Oman in the wilayat (district) of Bukha on the Musandam peninsula. This area has its own 'crude' place in the history of Omani oil & gas production.

Not far off its coastline is what the government has designated as offshore exploration Block 8 – a unique prospection zone in a country whose main production hubs are largely onshore.

What's more, according to a roughneck based here, both are 'beautiful' fields. Split into Bukha and West Bukha, in 1994 Block 8 apparently yielded gas condensate that was so high in quality (64°API), according to a Petroleum Directorate of Oman (PDO) spokesperson, that you can pretty much use it to run a car without refining (a sample is pictured above left)! No exaggeration, if you get the 'purity' standpoint.

Norway’s DNO International, under a remit from Muscat, is a major player here with two production fields. Its data indicates that production from West Bukha 2 and 3 fields currently averages 8,000 oil barrels per day as well as 27 million cubic feet of dry gas. All of this is sent via a 34 km pipeline for onshore processing at a plant located in Ras Al Khaimah, UAE. Furthermore, two additional wells – West Bukha 4 and 5 are in the pipeline, no pun intended.

Exciting times indeed for the Musandam Governorate (split from the rest of Oman by the UAE), which has of late started enjoying the prosperity seen in the rest of the country. Recent prosperity aside, this peninsula oozes history from ancient to modern when it comes to global trade. Market analysts should find it quite gripping – at least yours truly did!

Musandam juts out into the Strait of Hormuz, with the Persian Gulf on one side and the Sea of Oman on the other. Turn the clock or sundial back 5,000 years and you would have seen ships from ancient Oman (then known as Magan) sail between Mesopotamia and India. Magan’s traders knew about (and traded with) India well before the British, French and Portuguese traders ‘discovered’ the country. A museum exhibit offers a model of the vessels and charts the route (above right).

Local historians even suggest that interaction via sea routes took place with the Indus Valley Civilization on one side and modern day Egypt on the other. Fast forward to 2013, and you can easily spot oil tankers from any high vantage point – of which the peninsula provides several. Views of the Strait of Hormuz include tankers carrying their crude cargo out to the world as it is a crossing point for 90% of the Gulf's oil due to be shipped overseas (see below left).

As if by divine convenience – the most navigable bit lies in Omani territorial waters. To say that Musandam bears silent testimony to the history of global trade routes would be an understatement – it has actually shaped them. Roman Empire’s logs from the 2nd century mention the Cape of Musandam, as do Marco Polo’s from the 13th century.

The Portuguese occupied Musandam between 1515 and 1622 and the imposing Khasab Castle (see below) was built during the occupation. For just over four centuries, it has overlooked regional territorial waters and formed the focal point of the modern city of Khasab. After the defeat and expulsion of the Portuguese in the 17th century, the locals modified the castle to suit their defensive needs. Today, it is a modern day museum featuring several exhibits depicting the way of life in this enchanting part of Oman (see below right).

Targeted reinvestment of regional oil wealth by the administration of Sultan Qaboos bin Said Al Said has improved links between Khasab and the rest of Oman via air and sea. A local ferry service links Khasab to Muscat, as does a daily Oman Air flight. Sand, sun and sea on one side and mountains on the other, leave everything from hiking to snorkelling as a leisure option. And should you wish to spot dolphins, get a local tour guide to take you out to the sea!

There are a few local hotels, but the Golden Tulip Resort (now Atana), Khasab is the most impressive one in the area with great views of the waterfront from a poolside balcony and most of its rooms. It is also only a few minutes away from the Bassa Beach. There is a huge supermarket right next to Khasab Castle, with the sea-port terminal for a ferry to Muscat and Khasab airport for a flight close by! Right, that’s that for travel tips and observations. (Click below left for the sights minus the sound)

One tiny and somewhat darkly funny footnote though! A different kind of trade is also flourishing here which speaks volumes about the prosperity in Oman and the lack of it in sanction-squeezed Iran, whose coastline is barely 45 km across the Strait.

Using a decent pair of binoculars, the Oilholic spent a good few hours this evening noting how Iranian smugglers dock off the Port of Khasab (see below right for an aerial view) and conduct a 'cash and carry' trade. First off, differentiating a decidedly tacky Iranian boat from an Omani Dhow or a local motorboat is quite easy. The smugglers' communication method is rather rudimentary including a signalling system involving a combination of torchlights and car headlights. As for the cargo, do not be alarmed – it includes things as non-sinister as western branded biscuits, stimulants such as tea, coffee and cigarettes and of course dodgy satellite TV recorders.

By playing the dumb tourist card, the Oilholic got a local boatman to reveal that the trade route used here is a 50 minute motor-boat ride between Khasab and Qeshm Island, Iran and then on to the Iranian mainland. Most of the activity takes place from sunset onwards. But this desperate activity, which is lucrative for some, is also mighty dangerous.

Cross-crossing one of the busiest shipping lanes in the dark with no lights to avoid detection is fraught with danger. Storms often claim lives, as do unreported collisions with tankers and containers ships. Yet, driven by the desire to make a quick buck out of the cravings of a sanction squeezed Iran, the smugglers keep coming. Warehouses hoard until the price of a particular commodity is high enough in Iran and lo and behold a buyer usually arrives in the dark of the night.

Surprisingly, some of the smugglers or "shooties" (as they would be called were you to translate literally from Farsi), happen to be women! The Oilholic can personally vouch for it with a fair bit of disbelief! One is all for gender equality - but this is something else. Don't know about the Iranian side, but not many on the Omani side seem to mind the shooties plying their trade. If caught offshore by the Omani authorities the pretext of "fishing" usually gets the shooties away!

The traders of Musandam have been a very resourceful lot for centuries. In the 21st century, legal or not, sanctions have driven Iranians to a different, dangerous kind of resourcefulness. While illegal, it certainly is tenacious. Speaking of a more formal dialogue between Iran and Oman, Sultan Qaboos has become among the first world leaders to interact with Iran’s new president – Dr Hassan Rouhani. The Sultan, who is often seen as a bridge between the West and the Islamic Republic, oversaw the signing of a memorandum of understanding between Tehran and Muscat, which would see the latter export natural gas to Oman in a 25-year deal with a US$60 billion valuation.

While further details are yet to be formally announced, the transportation of natural gas would involve pulling a pipeline from Iran to Oman under the Sea of Oman, east of the Strait of Hormuz. Local media reports suggest that the deal would be the largest (by valuation) between the two nations. Sadly that’s all from Khasab folks as the Oilholic packs his bags for a short overnight stay in Muscat before the flight home to London. More from Oman later, in the meantime keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2013. Photo 1: Bukha oil on display in Khasab, Oman. Photo 2: Model of Mesopotamian ships. Photo 3: Oil tankers in the Strait of Hormuz. Photo 4: Khasab Castle. Photo 5: Collage of sights in Khasab. Photo 6: Port of Khasab as seen from Oman Air flight 917 © Gaurav Sharma, August 2013.

The Strait of Hormuz & Omani moves

The view of the Strait of Hormuz (pictured left) from the Musandam Peninsula is amazing. Let's face it - it's easier for the Oilholic to check it out here from the Omani side, rather than the Iranian side as the latter is not the most welcoming place for bloggers in general 'crude' or 'refined'. Not that yours truly has as of yet requested the Islamic Republic to issue him a visa.

As the world frets about Egyptian problems affecting oil tanker (and other) traffic from the Suez Canal, the Omanis are doing their utmost to mitigate one other potential threat – the one from Iran to close the Strait to oil traffic, should it be provoked by the West. The country is investing heavily in improvements and new build of its ports infrastructure.

The idea is to challenge nearby Dubai's dominance as a port hub and that too on the 'wrong' side of the Strait and prone to the Iran effect. Were you to look at a regional map, you'd find that all four of Oman's sea-port hubs/developments currently seeing investment (Muscat, Sohar, Salalah and lately Duqm) won't be affected in the highly unlikely event of the Strait becoming strife and blockade marred.

Of the four ports named above - Duqm, an erstwhile fishing village rather than a port, starts afresh complete with a new refinery, petrochemical plant, beachfront hotels and well, housing too. Billions are being invested in Duqm, with a figure nearing US$2 billion-plus being touted around.

Mitigating the Iranian threat is not foremost on Omani minds. This country has always maintained a balance between the West and Iran. In fact, the Sultan of Oman Qaboos bin Said Al Said is currently on a private visit to Iran and has announced fresh oil & gas sector co-operation between the two countries. However, diversifying Oman's economy away from oil & gas most certainly is on the nation's policy planning cards.

Aside from sea-ports, the government also wants Muscat International airport to rival Abu Dhabi and Dubai as an air transit point and aviation hub. The government's airport operator, Oman Airports Management, plans to award a dozen contracts this year and in 2014 to upgrade airport facilities in the capital city of Muscat (See above, click image to enlarge - for the current Muscat Airport terminal, ongoing construction work for the new one and an artist's impression of what it would look like in the future) along with Salalah. Additionally, the flag carrier Oman Air has ordered $2.5 billion worth of swanky new planes, according to a spokesperson.

However, the Oman government has made it abundantly clear that it wants to maintain the country's rustic charm, charcter and its points of differentiation from regional neighbours. So there won't be a mad Dubai-styled commercial rush. Afterall, standing out from the crowd is a unique selling point - so why ditch it? The Oilholic is certainly sold, blown away by the beauty of Musandam Peninsula and his first evening in Khasab before heading back to Muscat.

It's been an amazing experience from spotting oil tankers to mountain goats, soaking the sunshine to enjoying the mountainous views and beaches that are natural and not made of imported sand as is the case with Dubai. Even the Emiratis are suitably impressed, vindicated by the fact that UAE nationals are the biggest overseas buyers of Omani residential real estate, according to locals here. Officially speaking, Oman's Ministry of Housing said that of the 3,376 property sale deeds distributed to GCC nationals last year, Emirati buyers accounted for 1,694 titles.

Speaking of Emiratis buying things, Etihad Airways' sudden acquisition of a 49% stake in Serbia’s JAT and the latter's subsequent rebranding into Air Serbia has a strange ring to it. It's not that Etihad can’t make acquisitions and buy stakes! In fact, far from it – the airline already has stakes in Virgin Australia, Air Berlin, Aer Lingus, Air Seychelles and Jet Airways.

It's just that Abu Dhabi Crown Prince Sheikh Mohammed Bin Zayed Bin Sultan Al Nahyan has of late been professing his love for the Balkan country. The Emirate's investment vehicle Mubadala is also actively sniffing around all things Serbian from agricultural assets to hotels. However, its the timing the Oilholic is puzzled about and nothing else! For the record, Eithad denies any political pressure and or that either forays by His Majesty or the airline are related. That's all from the Musandam Peninsula for the moment folks. Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2013. Photo 1: Straight of Hormuz, Khasab, Musandam Peninsula, Oman. Photo 2: Muscat airport collage (Left to right – Muscat Airport Terminal, Ongoing construction work at Muscat Airport, Artist’s impression of new Muscat airport) © Gaurav Sharma, August, 2013.

Saudi’s ‘crude’ range, Fitch on Abu Dhabi & more

Petroleum economists are wondering if we have crossed a gateway to crude chaos? The magnificent one pictured (left) here in Abu Dhabi's Capital Garden is certainly no metaphor for the situation. Egypt is burning, Libya is protesting and US/UK/NATO are threatening [almost direct] action against Syria.

Add the US Federal Reserve's current stance on QE to the geopolitical mix and you get a bullish Brent price. Yes, yes, that's all very predictable. But when bulls run amok, all attention usually turns to Aramco's response. It is a well known fact that the Saudis like the crude oil price to remain within what economists prefer to describe as the "middle" ground. (You want your principal export to be priced high enough to keep you ticking, but not so high as to drive importers towards either consuming less or seeking alternatives).

Investment house Jadwa's research often puts such a Saudi comfort zone in US$80-90 per barrel price range. The Oilholic has been banging on about the same range too, though towards the conservative lower end (in the region of $78-80). The Emiratis would also be pretty happy with that too; it's a price range most here say they’ve based their budget on as well.

A scheduled (or "ordinary") OPEC meeting is not due until December and in any case the Saudis care precious little about the cartel's quota. Hints about Saudi sentiment only emerge when one gets to nab oil minister Ali Al-Naimi and that too if he actually wants to say a thing or two. As both Saudi Arabia and UAE have spare capacity, suspicions about a joint move on working towards a "price band" have lurked around since the turn of 1990s and Gulf War I.

Aramco's response to spikes and dives in the past, for instance the highs and lows of 2007-08 and a spike during the Libyan crisis, bears testimony to the so called middle approach. Recent empirical evidence suggests that if the Brent price spikes above $120 per barrel, Aramco usually raises its output to cool the market.

Conversely, if it falls rapidly (or is perceived to be heading below three digits), Aramco stunts output to prop-up the price. The current one is a high-ish price band. Smart money would be on ADNOC and Aramco raising their output, however much the Iranians and Venezuelans squeal. For the record, this blogger feels it is prudent to mention that Aramco denies it has any such price band.

Away from pricing matters, Fitch Ratings has affirmed Abu Dhabi's long-term foreign and local currency Issuer Default Ratings (IDR) at 'AA' with a Stable Outlook. Additionally, the UAE's country ceiling is affirmed at 'AA+' (This ceiling, the agency says, also applies to Ras al-Khaimah).

In a statement, the agency said, oil rich Abu Dhabi has a strong sovereign balance sheet, both in absolute terms and compared to most 'AA' category peers. To put things into perspective, its sovereign external debt at end of Q4 2012 was just 1% of GDP, compared to Fitch's estimate of sovereign foreign assets of 153% of GDP. Only Kuwait has a stronger sovereign net foreign asset position within the GCC.

With estimated current account surpluses of around double digits forecast each year, sovereign net foreign assets of Abu Dhabi are forecast to rise further by end-2015. Fitch also estimates that the fiscal surplus, including ADNOC dividends and ADIA investment income, returned to double digits in 2012 and will remain of this order of magnitude for each year to 2015.

Furthermore, non-oil growth in the Emirate accelerated to 7.7%. This parameter also compares favourably to other regional oil-rich peers. Help provided by Abu Dhabi to other Emirates is likely to be discretionary. Overall, Fitch notes that Abu Dhabi has the highest GDP per capita of any Fitch-rated sovereign.

However, the Abu Dhabi economy is still highly dependent on oil, which accounted for around 90% of fiscal and external revenues and around half of GDP in 2012. As proven reserves are large, this blogger is not alone in thinking that there should be no immediate concerns for Abu Dhabi. Furthermore, Fitch's conjecture is based on the supposition of a Brent price in the region of $105 per barrel this year and $100 in 2014. No concerns there either!

Just a couple of footnotes before bidding farewell to Abu Dhabi – first off, and following on from what the Oilholic blogged about earlier, The National columnist Ebrahim Hashem eloquently explains here why UAE's reserves are so attractive for IOCs. The same newspaper also noted on Friday that regional/GCC inflation is here to stay and that the MENA region is going to face a North-South divide akin to the EU. The troubled "NA" bit is likely to rely on the resource rich "ME" bit.

Inflation certainly hasn’t dampened the UAE auto market for sure – one of the first to see the latest models arrive in town. To this effect, the Oilholic gives you two quirky glimpses of some choice autos on the streets of Abu Dhabi. The first (pictured above left) is the latest glammed-up Mini Cooper model outside National Bank of Abu Dhabi's offices, the second is proof that an Emirati sandstorm can make the prettiest automobile look rather off colour.

Finally, a Bloomberg report noting that Oil-rich Norway had gone from a European leader to laggard in terms of consumer spending made yours truly chuckle. Maybe they should reduce the monstrous price of their beer, water and food, which the Oilholic found to his cost in Oslo recently. That's all from Abu Dhabi, its time to bid the Emirate good-bye for destination Oman! Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2013. Photo 1: Entrance to Capital Garden, Abu Dhabi, UAE Photo 2: Cars parked around Abu Dhabi, UAE © Gaurav Sharma, August, 2013.