Abu Dhabi calls $50 oil a 'gift to the world'

One of the United Arab Emirates’ top economic officials thinks $US50 oil is a “gift to the world.”

According to a report from Bloomberg, Ali Al Mansoori, the head of Abu Dhabi’s Department of Economic Development, said that, “It is a gift to the world that oil has dropped to $US50.”

Speaking in an interview on Sunday, Al Mansoori added, “Would we like for oil to stay at $US50? Absolutely not. We would like oil to go to $US70, $US80, but beyond that I think it would hurt the economic growth.”

On Monday morning, the price of Brent crude oil, the international benchmark, was around $US48 a barrel. A year ago, Brent crude was trading closer to $US95.

In the last year, oil prices have collapsed as US shale production surged while international demand declined somewhat, pressuring a number of oil-producing nations including Saudi Arabia and the UAE, which had depended on higher prices to meet certain budget requirements.

But since prices have begun to collapse, production both from US shale and OPEC — the 12-member oil cartel that Saudi Arabia is seen as the de facto leader of — have continued to increase.

OPEC isn’t set to meet to discuss its production targets until December 4.

In our latest Most Important Charts in the World feature, economist Gary Shilling highlighted this production dynamic and said OPEC and US producers are currently engaged in a game of chicken that could send prices to $US10 or $US20 a barrel.

“For a decade, OPEC output has been essentially flat with all the growth going to Canadian oil sands, American frackers and other non-OPEC producers,” Shilling wrote.

“OPEC got tired of restraining production to maintain oil prices while others increased market share. So it is playing a game of chicken by producing flat-out to force other major producers to chicken out and cut production. In this price war, the margin cost of production will probably be the chicken out price, and that’s $US10 to $US20 per barrel at the Permian Basin and in the Persian Gulf.”

And so while officials like Al Mansoori call the current price of oil a “gift” to the world and insinuate that longer-term prices about 20% or 30% lower than where many had previously expected is a good thing for the world, the new dynamics of the oil market still have not adequately worked themselves out.

Said another way, it isn’t clear that $US50 is a “gift,” or that prices will gradually grind higher from here: there’s still a lot of oil out there.

Read the full report at Bloomberg here »

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