Crude prices will probably stay low for longer than expected, International Monetary Fund Managing Director, Christine Lagarde has said, urging Gulf Arab oil-producing countries to cut spending and boost revenue through new taxes.
A value-added tax that is the same across the six-nation Gulf Cooperation Council should be adopted, Lagarde said in a speech in Abu Dhabi. The measure along with corporate income and property taxes would help raise government income, she said.
“Not only have oil prices fallen by around two-thirds from their most recent peak, but supply and demand-side factors suggest that they are likely to stay low for an extended period,” Lagarde said. That makes it necessary for oil producers to lower reliance on crude for government income, she said.
Global oil prices have dropped 44 percent in the past year, forcing Saudi Arabia to cut spending on energy subsidies and consider selling sovereign bonds and shares in national oil company, Saudi Arabian Oil Co., known as Saudi Aramco. The United Arab Emirate has also eliminated fuel subsidies.
U.S. benchmark West Texas Intermediate crude should trade in a range between $25 and $45 a barrel for the rest of the year, “although a very brief spike down towards $20 is possible,” the National Bank of Abu Dhabi PJSC said in its Global Investment Outlook 2016 report on Sunday. Prices at the lower end of the range will stimulate demand growth, it said.
WTI rose 1.9 percent on Monday to $30.20 a barrel by 11:20 a.m. in Dubai and Brent, benchmark for more than half of the world’s crude, climbed 1.5 percent to $33.49 a barrel.
Worried by the continued fall in oil prices, a commodity that accounts for about 90% of Nigeria’s revenue, President Muhammadu Buhari yesterday left Nigeria to Saudi Arabia and Qatar on a weeklong official visit with sliding oil price on top of his agenda.
Meanwhile, international benchmark on Brent crude was up around 2.5 per cent yesterday and was closing in on $34 a barrel, which, notes the Financial Times, indicates a “more stable footing”. Last week, it swung as low as $32 and set a high in excess of $36 as the first indication of an agreement to limit supply gains was announced and seemed to gather important support.
The deal, nominally struck in the early part of the week, includes the two largest suppliers in the world, Russia and Saudi Arabia, the de facto leader of the powerful Opec cartel, and proposes holding supplies at January levels. However, this is contingent on support from other major producers, including the likes of Iran, which is just re-entering the international export market.
Doubts remain that Iran and its neighbour, Iraq, which is pumping at record levels, will not sign up, although this was somewhat alleviated by supportive comments from Iranian ministers amid rumours of a key concession to allow the country to return exports to pre-sanction levels before a freeze took hold.
More profound concerns are that such a deal will do little to cure the issue of persistent oversupply. January’s global oil production total was among the largest ever – Russia is pumping at a post-Soviet-era high and Opec is also hitting numbers not witnessed for years – and most believe the deal merely confirms a ceiling to growth that was inevitable.
The hope, say analysts, is that the deal not only holds, but serves as a starting point for further incremental agreements – eventually meaning actually reductions in output. This, they say, is how production cuts have come about in similar situations in the past.

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