Current trends indicate demand and supply will increase, says expert
by Mohammad Ezz AL Deen | January 16, 2006
During the Gulf Research Centre’s third annual conference recently, Anas Alhajji, moderator of the Gulf Energy Program-me at the GRC, said he expects oil prices to stabilise in 2006.
Prices will only decline significantly, he said, if the US falls into recession as a result of a decline in government spending. “The soaring price in 2005 was due to the market fundamentals of limited supply and rising demand. Opec members ran out of marketable excess capacity, and non-Opec production was lower than expected, while global demand especially in the US, India and China continued to grow,” Dr. Alhajji said. Current trends estimate that both demand and supply will increase in 2006. However, oil prices will depend on the size of the additional production capacity, he added.
According to experts at the Dubai-based GRC, the Gulf is likely to experience a period of high growth in 2006, a modest decline in oil prices, significant political developments, rising tension, and a slow shift in focus towards Asia in the realm of international relations.
Emilie Rutledge, econ-omist at the GRC, said that high oil prices and the increasing global demand for oil triggered a boom for the GCC economies. The region’s aggregate GDP rose by 5.3 per cent, stock markets grew by 79 per cent and market capitalisation touched $1.1 trillion, an increase of 110 per cent over 2004. The aggregate GCC trade surplus stood at $253 billion in 2005, and imports of good and services rose by 20 per cent, she said. “Regional governments are generally aiming to avoid over-dependence on oil through economic diversification strategies, labour nationalisation policies and the privatisation process,” she said.
Vital issues
GRC Chairman Abdul Aziz Sager highlighted important issues in 2005, including the continuing political reform process that has firmly implanted itself in the region, the effects of the unprecedented increase in oil prices on the GCC economies, as well as the numerous security challenges that confront the region. “Despite the economic and strategic importance it represents, the developments in the Gulf region during 2005 were not reassuring as far as the status of Gulf security is concerned,” Sager added.
The GCC defence budget amounted to $34 billion during 2005, a $4 billion increase over 2004. The budget growth could be related to higher revenues because of oil prices, said Mustafa Alani, Director of the Security and Terrorism Programme at the GRC.