Oil prices and the GCC: Could the region be stoking oil prices?

With constrained supply and growing demand, the exportable surplus from the GCC has fallen for the first time and this appears to be unavoidable, rather than intentional. Record oil prices are no longer driving GCC growth, but GCC growth may be driving up oil prices.

Record oil prices have captured public attention for the past several months. The persistent rise has only been temporarily interrupted by some good news, China

The specific case of the oil-surplus GCC shows that domestic demand growth has exceeded supply growth, and as a result the exportable surplus of oil has fallen in 2007. With record economic growth reflected in rising energy demand, the shrinking exportable surplus is likely to stoke oil prices. Hence, having once been the swing producer of oil, the GCC may no longer be able to play a role in rectifying the global imbalance.

Easing oil production growth from the GCC is reflected in the slowdown in global production. While OPEC has been successful in stabilising oil prices (with Saudi Arabia being the swing producer), its ability to do so has faded significantly in recent years. Other members of the GCC have stayed close to their production capacity, which has increased somewhat since the beginning of the oil boom in 2003.

CPI Financial