The oil exporting countries of the Gulf Cooperation Council (GCC) are likely to report twin deficits due to the downturn in oil prices and a supply glut that could expand, but even as assets are being depleted at an alarming rate none is in enough trouble to cut production.

According to the National Bank of Abu Dhabi (NBAD)’s 2016 Global Investment Outlook, the region faces “significant asset depletion” as it will have to further adjust to low oil prices, which the report estimates will remain between $25 and $45 for the remainder of the year.

At the end of 2014, the countries of the GCC—which includes Saudi Arabia, Kuwait, Qatar, UAE, Bahrain and Oman—had about $3 trillion in net foreign assets. But by the end of 2015, they had divested some $210 billion in those assets, and the bank is predicting another loss of $180 billion in assets by the end of this year.

The UAE has reduced energy subsidies and put non-critical projects on hold, and is also considering value-added tax (VAT), income and corporate taxes, privatizations and bond sales to add to government coffers. Related: Is This The Best Moment To Get Into Oil?

The UAE is faring better than others, according to NBAD because of its high financial reserves and its move to diversify away from oil and gas to some extent. Oil revenue makes up some 65 percent of the UAE’s government income. And while countries that rely on oil exports alone for revenue will be further hit by the flooding of the market with Iranian oil, the UAE’s diversified economy will benefit to some extent from renewed bilateral trade with Iran.

The UAE’s budget deficit is even expected to improve 4 percent this year. But the bank warns that UAE equities could be oversold, and “cheap in terms of valuation”, and the UAE currency, the dirham, might be overvalued by as much as 25 percent.

Qatar is also proving strong enough to handle the downturn.

Overall, the bank sees supply rising and the glut expanding. Not only is Iran set to adding 500,000-700,000 barrels per day to supply, Iraq is also expected to add to production and Saudi Arabia isn’t producing at full capacity. The kingdom apparently has another 2 million barrels per day in spare oil output it could dump on the market. Related: OPEC Has Never Had As Much Power As People Think

According to the 2016 outlook report, Saudi Arabia registered a fiscal deficit of 16 percent of GDP in 2015 of around $100 billion, but this year it is expected to show a deficit of 13 percent of GDP, which might be bad news for those who have been hoping the oil price downturn would force the Saudis to cut production sooner rather than later.

It is worth noting, however, that the Saudi riyal could be overvalued by around 17 percent.

Overall, though the GCC isn’t really in bad shape, asset depletion aside, due to low sovereign debt and financial reserves.





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One takeaway here is that the NBAD is projecting a potential rise in oil prices up to $45 this year, but since everyone across the board has gotten this wrong, it’s also leaving a window cracked, saying that “a very brief spike downwards toward $20 is possible.”

But the real takeaway is a bunch of numbers that show exactly why the Saudis aren’t going to cut production and why all the talk about an output freeze at January levels was a red herring.

Saudi Oil Minister Ali Al Naimi said as much when he addressed the IHS CERAWeek conference in Houston on Tuesday, where he said a production cut was “not going to happen.”

By Charles Kennedy of Oilprice.com

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