The UAE can expect increased revenues from oil exports this year as the price of crude has risen substantially on the back of improved demand, after a steep fall last year due to the global economic crisis.

According to a new report issued by the Dubai Chamber of Commerce and Industry (DCCI), titled 'Oil Market Outlook: Implications for the UAE Economy', higher oil demand will lead to higher oil receipts for the country.

"At the onset of the economic slowdown in the last quarter of 2008, the UAE economy faced a challenging period ahead. Crude oil prices had fallen precipitously from a high of $147 (Dh539) per barrel (p/b) in July 2008 to around $32 p/b in March 2009, and the outlook was bleak given the significant weakening in aggregate demand," said the report, while elaborating on the sharp decline in crude prices recorded last year.

"However, since then, crude oil prices have bounced back, staging a strong recovery during the second half of 2009 and this trend has continued in the first four months of 2010."

Prices traded in the $70 to $75 p/b range for most of the latter part of 2009, breaching the $80 p/b mark in the last quarter of 2009, and raising the annual average 2009 price to $62 p/b, as per data in the report.

Even though down about 34.4 per cent on the 2008 average, the reversal in the price of crude since the summer of 2009 has helped cushion the impact of the economic downturn in the UAE. This stronger-than-expected crude oil revenue has helped finance counter-cyclical policies, government support for the UAE's financial sector and revive investor and consumer confidence throughout the country, said the report.

"While sharply lower, fiscal and current account balances are largely estimated to have stayed in a slight surplus according to the International Monetary Fund (IMF), allowing some replenishment of external assets initially drawn down when the crisis first hit." The report also underlines the fact that crude price fluctuations play an important part in economic growth. "Despite the positive, albeit slower growth momentum in non-oil sectors, overall UAE real gross domestic product (GDP) growth was dragged down by the reduction in crude oil production, with the Ministry of Economy suggesting that real GDP growth slowed to 1.3 per cent in 2009, after growing at 7.4 per cent in 2008.

"Overall, the developments during 2009 have served as a reminder that while the UAE is in the midst of an impressive economic transformation fuelled by strong non-oil growth, its economy remains dependent on the hydrocarbon sector. This sector continues to account for just over a third of economic output, and more than three quarters of budget revenues and export earnings.

"Crude oil revenues are a vital source of finance for the economic transformation underway, and underpin the public sectors' large infrastructure developments. They are a major driver of liquidity, and crude oil fluctuations have a large influence on consumer and investor confidence. The extent to which the UAE can grow sustainably will thus be substantially influenced by developments in the global crude oil markets," the authors of the report highlight.

Quoting the UAE Ministry of Economy, the report states that 97.2 per cent of crude oil is exported to Asia and the Pacific region. Given that international agencies such as the IMF and World Bank expect this region to recover sharply in 2010 and beyond, it is clear that demand for crude oil will thus fuel economic expansion in the Asia and Pacific region.

This is good news for oil-exporting countries like the UAE, as increased hydrocarbon revenues will enable the country to continue with its large-scale fiscal investments, which will re-ignite aggregate demand and bolster the creation of new job opportunities which can, in turn, provide a stronger base for the entire economy to grow further.

Overall, with the futures market currently pricing in crude oil at an average of $81.4 p/b in 2010, the economic outlook for the UAE is promising. Experts believe that not only are current oil prices sustainable in the short-term, but also, if we go by recent developments, they could touch $100 p/b in the longer run.

Speaking to Emirates Business earlier, Philipp L Lotter, Senior Vice-President, Corporate Finance Group at Moody's, had said: "Long-term prospects look a lot different, with all market fundamentals pointing towards oil at $100 and more."

The DCCI report added: "Although there appears to be limited scope to raise production (given Opec quota restrictions), crude oil revenues will still rebound strongly this year in line with the projected 31.3 per cent increase in crude oil prices in 2010. This will evidently raise hydrocarbon receipts and thus the current account surplus and allow for a sustained fiscal surplus and strong public spending plans."