Outlook for Oman’s oil sector robust as investors remain keen

Despite relatively muted production this year, the commodities sector continue to be a reliable source of revenue for the government. 

The first half of 2023 saw investments in Oman’s oil and gas exploration, production, and development reach approximately USD 5.84 billion. Nearly two thirds of the investment was allocated to capital expenditure, covering geological surveys, drilling, and facilities, while the remaining 38% was designated for operating expenses.

The Ministry of Energy and Minerals also reported that oil companies drilled numerous exploratory wells during the period with initial results deemed "promising". However, further confirmation through long-term testing, spanning several months or more, is necessary.

The ministry initiated a bidding tour earlier in 2023 for Blocks 15, 54, and 36 to garnered significant interest from both local and international companies, and it is currently reviewing the offers, with assignments expected shortly.

Oman’s crude oil production slipped 1.4% to 1.05 million barrels per day (mbpd) in the first 10 months of the year, compared to 1.06 mbpd during the same period in 2022. Exports of oil products also fell 4.9% during the period as the Sultanate complied with quotas set by the Organization of the Petroleum Exporting Countries (OPEC). In December, Oman announced an additional crude oil voluntary reduction of 42,000 barrels per day (bpd) with effect from January 2024 until the end of March 2024, in support of precautionary efforts made by OPEC+ to enhance the stability of oil markets. Th additional reduction comes after a previous voluntary reduction of 40,000 bpd until December 2024.

The average price of an Omani oil during the period also fell 16.3%, but it remains elevated at USD 80.5 per barrel, according to National Centre for Statistics and Information (NCSI). As such, petroleum activities during the second quarter of the year – the latest data available – shows crude petroleum’s contribution to GDP at current prices fell 19.5%, while natural gas declined 9.2%. Still, the sector contributed a hefty OMR 3.6 billion to the GDP.

GLOBAL OUTLOOK

Recent data affirms robust global growth trends and positive oil market fundamentals. Despite initial concerns, the global economic landscape remains strong, with the US sustaining substantial growth in the third quarter. The IMF has also upgraded its projection for Chinese economic growth in 2023 to 5.4%. While potential downside risks exist, such as the impact of sustained restrictive monetary policies and geopolitical developments, they are considered minor.

Contrary to prevailing negative sentiments about China's oil demand performance and the global oil market, the latest data indicates a noteworthy increase in Chinese crude imports to 11.4 million bpd in October. This trajectory suggests that China is on course to achieve a new annual record high for this year, maintaining levels comparable to previous years.

Chinese crude imports have not only remained robust, but have surged to a level significantly above the five-year average range. The month-on-month increase is approximately 240,000 bpd, with year-on-year crude imports up by 1.2 million bpd. Similarly, India's crude imports are anticipated to rise in 4Q23, reaching a record high for the year.

As global oil demand exhibits resilience and strength, particularly in non-OECD countries, the OPEC Secretariat's latest forecast for global oil demand growth in 2023 has been revised upward to reach 2.5 million bpd. These positive trends underscore the continued vitality of the global oil market and challenge the prevailing pessimistic market sentiment.

“The supply picture also remains strong with non-OPEC supply revised up slightly to reach 1.8 million bpd for 2023, the US being the main growth contributor,” according to OPEC’s latest report. “Clearly, the US liquids supply growth has been stronger than what is suggested by weekly data. In fact, the weekly data which has been underestimating US crude production since January, as this were followed by significant monthly data upward catch-up trend, especially since August. The more reliable monthly data indicates a very gradual increase in US crude production.”

Global oil demand growth is set to slow to 900 thousand barrel per day (kb/d) in 2024 as the post-COVID 19 rebound runs out of steam. Global supply growth will rose to 1.7 million in 2024, according to the International Energy Agency, dominated by non-OPEC+ producers. As for the OPEC+ bloc, the supply story this year is one of contraction, although Iran is on course to rank as the world’s second biggest source of growth after the United States.