A fresh drop in the price of oil looks likely to put more pressure on Sunday on stock markets in the Gulf, where investors appear to be waiting for the commodity to stabilise before opening new positions.
Brent crude dropped nearly 3 percent and settled at below $62 a barrel on Friday after the International Energy Agency cut its outlook for demand growth in 2015.
A plunge in the Gulf markets triggered by oil’s decline has wiped out roughly $150 billion of value since the end of October and selling may continue as few people are willing to call a bottom for the markets just yet.
Investors’ main concern is that governments in the region may start to cut spending in line with falling oil export revenues. Analysts believe that most governments will comfortably be able to maintain spending, but Oman and Bahrain will be under pressure because of their lower fiscal reserves and higher fiscal break-even prices.
Rating agency Standard and Poor’s on Friday cut its outlook on Bahrain’s ‘BBB’ sovereign rating to negative from stable.
“We think a period of lower oil prices will exacerbate existing structural weaknesses in Bahrain’s public finances, absent corrective measures,” it said in a report. “However, we anticipate regional financial support to Bahrain will continue to be forthcoming, and we consequently expect its economic growth to continue.”
Bahrain’s stock index is up 11.4 percent this year and has so far dodged the steep drops seen in other Gulf markets, but that may be due to the market’s lower liquidity rather than to optimism about the Bahraini economy.
Oman is down 15.0 percent year-to-date, Kuwait has lost 14.4 percent and Saudi Arabia has fallen 1.7 percent. Qatar leads gains with a 13.7 percent increase, while Dubai and Abu Dhabi are up 6.7 and 1.8 percent respectively.-Reuters
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