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Analysts react to oil price recovery

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(18 Jan 2018) LEAD IN: Analysts have been reacting to the recent high in oil prices. The rise to a three-year peak of over 70 US dollars a barrel is predicted to benefit GCC countries. STORY-LINE: Brent Crude, used to price international oils, reached 70 US dollars a barrel last week, the highest they have been since December 2014. Today, it was trading at 69.20 a dollars a barrel. GCC analysts expect the recent increases to benefit the region's economy. "We're looking at a much much bigger profit and GDP coming straight from the oil sector," says Issam Kassabieh, a Dubai-based analyst at Menacorp Finance. OPEC, the organisation which represents 12 major oil producing countries, cut production in the wake of the price crash. Research company JBC Energy monitors activity in the market. Their analyst David Wech is not convinced that reduced production alone is responsible for recent price rises. "It's difficult to attribute it directly to the cuts because the cuts have been there for years' time," he says. Instead, he credits a "combination of factors" including demand and the global economy as well as the drop in production. He expects oil producers - and particularly US shale producers - will up production to take advantage of the recovery if current prices continue. "We would see an additional half million barrels per day of oil production in the second half of the year from the US." Many countries in the Gulf are heavily reliant on oil for revenue. And Menacorp analyst Kassabieh says prices above 60 US dollars a barrel would be "extremely favourable" for GCC countries. "We can see government spending increasing on infrastructure and that will boost the private sector." The plunge in prices three years ago put serious financial pressure on Gulf nations. Since then, they have been working to diversify their economy away from oil. The UAE and Saudi Arabia introduced a 5 percent tax on most goods and services at the start of 2018. The UAE expects to raise around 12 billion dirhams (3.3 billion US dollars) from the tax. But with the high oil prices come higher petrol prices in a country where living expenses are already increasing due to the VAT. And Kassabieh says the removal of state subsidies has left people with less disposable income, but he thinks a boosted private sector should compensate for that by paying higher salaries. He predicts political tensions in Iran will play a major role in the upcoming months. "If the US decides to impose sanctions on Iran because of what is happening politically, and because partially of the nuclear programme that they have, we can see oil prices inch higher because then we might see that oil exports from Iran will vanish," he says. And JBC Energy's analyst believes oil is still king on the world's highways. "Electric driving options have had the headlines over a long time of 2017. But at the same time I think the market is realising that all this will take time," Wech says. "If you look for example at the car show in Detroit at the moment. They are all showing only the very big cars, they are not showing electric cars. They are talking about potential investments in the future but for the time being that is not a major concern for the oil industry". So oil prices are going to be a big player in the world economy for years to come. You can license this story through AP Archive: http://www.aparchive.com/metadata/youtube/1840e77b55ba0e2e2defa4398f9fef05 Find out more about AP Archive: http://www.aparchive.com/HowWeWork
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