Benchmark oil prices jumped by almost 2 per cent on Monday morning to scale one-year highs as supply tightened.
Brent crude oil prices were up 1.9 per cent to $39.49 per barrel at 9am UAE time, up almost 43 per cent on the $26.67 that the global benchmark had tumbled to on January 18, a 13-year-low.
On the other hand, West Texas Intermediate (WTI) was trading at $36.63 a barrel at the same time, up 1.9 per cent over the previous session’s close – but a surge of almost 40 per cent over the 13-year-low of $26.21 a barrel that it slipped to on February 11.
An improving global outlook (which means more potential demand for oil) in addition to a falling US shale oil rig count (which means less supply of oil) have been the primary driving forces behind oil prices moving north over the past few weeks.
Source: Baker Hughes
According to data from Baker Hughes, US, Canadian and international energy firms shut down an estimated 109 rigs in the last one week (February 26-March 4), while the number of rigs closed in the past one year stand at 1,087.
Energy firms in the US alone have shuttered some 703 rigs over the past one year. Oil prices slumped by almost 70 per cent between June 2014 and January 2016, but have since made a remarkable recovery.
The change in sentiment towards the commodity is a welcome sign for oil exporters, most of which have had to scale down their ambitious budgets this year to bring them in line with the prevailing oil prices.
However, some GCC countries, including the UAE, have ample reserves and multiple revenue sources to ensure that the funding of all necessary projects is independent of fluctuating oil revenues.
In January this year, Sultan bin Saeed Al Mansouri, Minister of Economy of the UAE, said the Cabinet's approval of an Dh48.5 billion federal budget showed its determination to continue to carry out ambitious projects in vital sectors like healthcare, social development, economic development, protection of the environment, culture and infrastructure, in line with the UAE Vision 2021.
He had then noted that the country was continuing with its projects of infrastructure, and was unlikely to be affected by the ongoing decline in oil prices.