Higher oil prices and economic recovery support lower fiscal breakeven prices for Middle East producers

Saudi Arabia's fiscal breakeven price will decline 15.6% from its 2020 levels to $65.7 per barrel in 2022

Workers at the Sirte Oil Company in Brega, Libya. The blockade has cost Libya $11bn in fiscal revenue. Reuters

Higher oil prices, an expected global economic rebound and growing oil demand are set to lower the fiscal breakeven price of major Middle East producers, according to the International Monetary Fund.

The fiscal breakeven price is defined as the oil price needed to balance the budgets of oil-exporting countries.

As oil prices declined and fields matured in several Middle East countries, raising production costs, the breakeven price for several producers increased.

However, with oil prices rising this year owing to better growth prospects for the world economy, breakeven prices for resource-based economies in the Middle East appear to be narrowing.

The IMF raised its global economic outlook to 6 per cent from and earlier 5.5 per cent forecast, as a result of quicker Covid-19 vaccination campaigns and fiscal and monetary support provided by governments and central banks.

For Saudi Arabia, the biggest oil exporter in the world and the Middle East, the breakeven price is set to decline by 15.6 per cent from a year ago to $65.70 a barrel in 2022, according to the fund.

Saudi Arabia’s fiscal breakeven price, which was $77.90 a barrel in 2020, is expected to decline marginally to $76.20 this year. The price has been steadily falling since 2018, when it was $88.60 a barrel.

The fiscal breakeven price of Iraq, Opec’s second-largest producer, has increased steadily since 2018, when it was $45.40 a barrel.

This is due to higher spending, particularly to maintain a bloated public sector over the past couple of years, and a fiscal crisis last year that exhausted the country's domestic borrowing capacity.

Last year, Baghdad had a fiscal breakeven of $63.70, which is expected to hit $71.30 this year before falling to $66.10 in 2022.

Iran, one of the most populous nations in West Asia, has been squeezed by US sanctions and hit hard by Covid-19, resulting in the worst death toll in the Middle East.

Higher fuel prices and the impact of the pandemic on the global economy have exacerbated its financial crisis.

Iran needed oil prices to average $304.30 a barrel to break even fiscally in 2020. Its numbers are expected improve relatively in 2021 to $242.80 a barrel. However, its breakeven price is expected to rise to $259.20 in 2022.

Libya, the second-biggest producer of crude in North Africa, is one of the lowest-cost producers in the region.

Known for its light, sweet grade of oil, the country faced severe setbacks in terms of exporting oil due to a blockade that lasted about a year.

This caused its fiscal breakeven price to rise by 336 per cent to $417.50 a barrel last year.

However, in one of the steepest declines among oil producers in the region, Libya's fiscal breakeven price is expected fall by about 88 per cent to $48.80 a barrel this year.

The price needed to balance its budget will decline further to $46.70 in 2022, which will be the region's lowest after Qatar, which is largely a gas producer.

Libya’s reversal of fortunes follows the end of the blockade, which allowed it to substantially increase its export volumes.

Its production rose to 1.19 million barrels per day in March, about 10 times higher than the 121,000 bpd it produced in the third quarter of last year, according to secondary Opec sources.

The UAE, Opec’s third-largest producer, is expected to have a fiscal breakeven price of $60.40 in 2022, down from $68.20 in 2020 and $64.60 this year.

Bahrain, which traditionally has had one of the highest fiscal breakeven prices among Gulf countries due to its early decline in reserves, will have a breakeven price of $88.20 this year and $85.80 in 2022, compared with $100.40 in 2020.

Oman’s fiscal breakeven price will reach $61.80 a barrel in 2022, while Kuwait will need a price of $64.50 to balance its budget.