Following a harrowing week, many investors in the country are hoping that when the Qatar Stock Exchange opens tomorrow morning, the panic that prompted last week’s sell-off has passed.
Qatar’s benchmark index tumbled 7.4 percent last week, sinking to a 32-week low on Thursday. It was a similar story elsewhere in the GCC, including in Dubai where the emirate’s main index declined 13.8 percent over the course of the week.
The primary culprit was oil, the price of which dipped below $60 a barrel for the first time since July 2009 after OPEC released a forecast that predicted weaker demand for its members’ oil.
Qatar’s large financial reserves should help the government shoulder a period of low oil prices. However, authorities will be under pressure to cut costs – likely by delaying or canceling pricey construction projects.
This would have negative implications for infrastructure and property developers, as well as the financial firms that support them. Real estate firms were the hardest hit during Thursday’s stock market sell-off in Qatar, with the exchange’s index for the sector dropping 5.2 percent.
Cause for concern?
Analysts said last week’s stock market plunge was sparked by fear among individual investors who, figuring that lower oil prices would drag down share prices, rushed to cash out and book their profits.
“What we see is panic selling – people sell whatever they can irrespective of valuations,” Shakeel Sarwar, head of asset management at Securities & Investment Co. in Bahrain, told Reuters.
Qatar’s economy remains in solid shape, although the government will be reaping lower revenues from hydrocarbon sales. The includes the country’s bountiful supply of natural gas, the price of which is traditionally tied to oil.
There’s still a chance Qatar could turn a budget surplus. Estimates of the exact point at which Qatar would break even vary, ranging from US$59 a barrel to slightly more than $77 a barrel.
For its part, the government prepared its most recent budget with an assumed oil price of $65 a barrel. However, Qatar has overspent its budget by between 10 and 25 percent in recent years, according to Reuters, but high natural resource prices helped compensate for larger-than-planned expenditures.
And even if the country were to slip into a deficit, the government could tap Qatar’s large sovereign wealth fund to sustain the current levels of public spending.
Government costs could be curtailed by reducing subsidies for items such as petrol, electricity and water. However, ratings agency Moody’s recently said social welfare demands by residents make this scenario – as well as measures to increase revenues, such as news taxes – highly unlikely in the GCC.
Instead, Moody’s said governments in the Gulf would likely cut back on “non-strategic investment projects.” In Qatar, authorities already reportedly postponed or shelved altogether some 15 percent of development projects not related to the 2022 World Cup earlier this year.
Of course they are panicking, the GCC states are a one trick pony, however the governments can ride this out for a while with their large cash reserves. It will probably mean less investment in local infrastructure projects and oil and gas projects will be put on hold. If it is one or two years of low oil prices it’s not much of a problem, if it goes further than that it’s an issue.
Keeping the locals doped up on easy benefits and fat paying government jobs especially in Saudi, will start to hurt and the bargain between spending money and peace with the locals might become a cost too much to finance. The rulers will hope this dip in oil prices doesn’t last too long or they may need to devise a new pact with the local population to keep them happy.
Actually one can argue we reduced oil prices on purpose for political reasons.
Certainly true, the enemy of the GCC iran is hurting the most. The GCC can live with it for a while, but for iran it is a disaster. Hopefully the Iranians can rise up and free themselves from an oppressive dictatorship
If the “we” you refer to is the middle east, then it is a totally wrong assumption. It is the big bro America which calls the shots and the “we” of the middle east get played like a fiddle, as has been the case for decades.
I fear that the wrong assumption is all your’s.
“Petroleum and Mineral Resources Minister Ali Al-Naimi told fellow OPEC members in Vienna that they must combat the US shale oil boom, arguing against cutting crude output in order to depress prices and undermine the profitability of North American producers.”
Lol combat the US’s profitibility and ecconomy? I think you are mistaking Qatar for a country that superpowers respect rather than take advantage of. Qatar only gets told what to do 😉 it is important to alays remember that.
This was expected. As American shale oil production increases, OPEC reduces their prices to discourage further investment. Unfortunately for them the Americans saw this coming a mile away. Glass economies of the middle east cant take low oil prices for long while the Americans can dig in for the long run and outlast pretty much everyone else in the economic game.
OPEC will have to come up with a better plan to face the force of worldwide shale oil facilities development instead of a price war.
Saudi can take it as recovery cost for oil is so low and they have huge reserves, their problem would be the possible collapse of states around them which could fuel their internal discontent.
Recovery costs from the ground don’t mean much in the bigger picture of the fiscal budget however.
None of the gulf states, including Saudi, cant handle low oil prices for long. The Americans however, can play the waiting game for decades if need be. Plus they have the greatest asset when it comes to these economic clashes. Free enterprise.
Saudi can hang on for a good feed. Two I reckon before it starts to really hurt.
Of course the U.S. and Europe will out last the GCC kingdoms. They can adapt and change. The GCC sold their soul to easy money and cheap foreign labour. Take one of them out of the equation and the dynamics changes for the worst. They need to free their economies, break the tribal system if abuse and free themselves from religious dogma. Won’t happen of course
The U.S. can dig in for the long run? Are you on drugs? The pinch is already hurting Texas and Oklahoma buddy. Those two states alone couldn’t dig in for a few months without it hurting let alone a year.
The US economy doesnt depend on one single product. They can wait out the low prices with ease. Slow down production and pick it back up as oil prices rise, workers are never in shortage in that country. Not to mention the low oil prices will be an incentive for industry and spur the US economy towards growth. Win Win.
Playing economic games with the Americans is not wise, especially for economies as weak and fragile as the Gulf countries.
Perhaps the day is not far when countries like China, Japan, India and others who are some of the largest consumers of this products might find cheaper alternatives and then it would be a real disaster for the economies of the region and all this investors who have all their eggs in just one basket
The oil price drop has been engineered to crush the Russian economy – nothing else. If OPEC wanted they could cut production and raise the price overnight.