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EM oil producers finding hard to hit hard fiscal breakevens – Deutsche Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 2, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at Deutsche Bank, suggests that the persistent drop in oil prices, combined with uncertainty about whether we have reached the bottom, has raised concerns about the ability of major oil producers to endure a further period of low oil prices.

    Key Quotes

    “The sustainability of their budgets has come under particular scrutiny. Recent fiscal adjustments and/or currency weakness have led to the breakevens for most producers falling. However, despite adjustments made by oil producers, breakevens for all countries remain above 2016 crude forecasts, due to the sharp drop in oil prices. This means that fiscal deficits are here to stay, requiring continuous draw down of fiscal reserves and/or rising debt issuance.

    Despite these spending adjustments we note that national budget breakevens are generally still above the US tight oil incentive cost breakeven of USD 50-55/bbl. Therefore national budget breakevens suggest that even as the oil market rebalances next year as it anticipates a modeled supply-demand deficit in 2018, oil prices may still remain too low to return producer countries to budget surpluses.

    There is also a vast difference in the breakeven prices for different producers, reflecting the varying degrees of adjustment already made. Breakeven estimates for 2016 are highest for Bahrain (the only country with a three-digit breakeven), while Kuwait and Qatar are in comparatively the best shape, with breakeven prices around $50bbl.”
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