As the end of the year nears, all GCC oil producers will turn their attention to 2012 budgets and speculation grows as to what oil price averages will be for the next 12 months.

In 2011, a number of factors propelled oil to more than $100 per barrel, including the civil war in Libya and increased demand from Asia. Average prices for 2011 may even yet be a new record that almost touches $110 a barrel.

World oil reserves
Region Percentage
Middle East 54.4
South & Central America 17.3
Europe & Eurasia 10.1
Africa 9.5
North America 5.4
Asia Pacific 3.3
Source: BP

Now the Libyan conflict has been resolved, it is starting to ramp up production of its sweet, light crude oil. This means that Saudi Arabia should not pump as much oil in 2012 as it has in 2011, which will impact on revenues.

The financial problems affecting the EU, most notably Greece and Italy, should also check demand for both crude oil as well as refined products and petrochemical feedstocks in Asia.

These global issues will have an effect on the GCC as the majority of its oil is sent to Asia, meaning a drop in global demand for consumer items is now felt in Riyadh and Abu Dhabi just as it is in Tokyo and Beijing.

2010 oil exports
US 2.154
Canada 2.599
South & Central America 3.568
Europe 1.888
Former Soviet Union 8.544
Middle East 18.883
North Africa 2.871
West Africa 4.601
Figures in millions of barrels. Source: BP

However, demand for oil is still strong in the emerging Asian nations, as well as the Middle East itself. This demand is being driven by strong domestic growth and many analysts are expecting this to continue into 2012.

The Middle East growth is being driven primarily by ambitious development programmes, as well as large subsidies for hydrocarbons at both retail and industrial levels.

Most GCC countries have indicated privately the desire to lower subsidies for refined products and utilities, but few will risk such a move so soon after the Arab Spring.

The UK’s HSBC has predicted average oil prices to drop to $90 per barrel in 2012, which is now considered the acceptable price by many major producers.  

To give an indication of how attitudes within Opec have changed, $90 oil is now being quoted as a “fair price” for the world to pay. In 2009, the oil cartel deemed $70-$80 a “fair price”.

All major oil producers walk a fine line between maximising oil revenues and forcing developed countries to explore alternative energy solutions such as nuclear power, oil sands and gas shale.

Continued $100+ oil prices are only going to expedite developed countries into cutting consumption, as well as explore non-conventional energy sources.

The question is whether or not GCC countries can sustain ambitious development plans on $90 a barrel of oil. It has become apparent that some of the major producers, especially Abu Dhabi, have slowed down certain non-essential high-value projects, but the majority of the key projects remain.

Saudi Arabia remains completely committed to its development, especially its industrial diversification projects. With so many of these schemes costing billions of dollars it can ill afford a year of volatile fluctuations in oil prices and will be entirely satisfied with $90 oil.