Oil price fall may have helped Gulf producers

Low oil has been good for Middle East: CEO
Low oil has been good for Middle East: CEO   

The drastic fall in oil prices over recent months is widely thought to have hit the Gulf's dominant producers hard as they battle with U.S. rivals.

But the CEO of one Middle East oil company argues that actually the opposite is true: the price rout has actually been good for producers in the region, forcing them to focus on diversification and efficiency.

"Despite being in the oil business, the somewhat lower oil prices… have actually been good for the region," Majid Jafar, CEO of Crescent Petroleum – the oldest private oil and gas company in the Middle East, headquartered in the United Arab Emirates – told CNBC Friday at the World Economic Forum summit in Jordan.

"It's been good for producers. It has refocused attention on economic diversification; better efficiency – to use less of your own production. We've been getting high on our own supply in many Gulf countries – and that will actually be better for the long term."

Meanwhile, oil importers in the Middle East had obviously benefited from lower prices, he said, as they have been able to make significant savings.

A worker stands at a pipeline, watching a flare stack at the Saudi Aramco oil field complex facilities at Shaybah in the Rub' al Khali ('empty quarter') desert in Shaybah, Saudi Arabia.
Reza | Getty Images
A worker stands at a pipeline, watching a flare stack at the Saudi Aramco oil field complex facilities at Shaybah in the Rub' al Khali ('empty quarter') desert in Shaybah, Saudi Arabia.

The price of Brent crude has tanked from around $120 a barrel in June last year to lows of around $45 a barrel in January, although it has since bounced back to trade around $6 a barrel. This fall in prices was on the back of weak demand, a strong dollar and booming U.S. oil production, the International Energy Agency (IEA) has said.

But the Organization of the Petroleum Exporting Countries (OPEC) – and largest producer Saudi Arabia - has refused to cut production, with some analysts saying it is playing a "game of chicken" with the U.S., where production costs are higher.

Oil prices could also be affected by the prospect of Iranian crude coming back onto the market, if sanctions on Iran are lifted as part of an international nuclear deal. However, Saudi Arabia's influential Oil Minister, Ali Al-Naimi, told CNBC earlier this month that he was "not worried at all" about this issue.

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Crescent Petroleum's Jafar also played down the impact of Iranian crude, saying it would "not be a huge game-changer."

"(It will add) maybe 1 million barrels over a few years - compared to the several million barrels North America has been adding every year over the last few years," he said.

Crude oil: Friend or foe?
Crude oil: Friend or foe?   

The bigger factors to watch were instead what happens to U.S. supply, given the lower prices, Jafar added, and "above all" what happens to Chinese demand.

There have also been growing concerns about the rate of Chinese growth in the face of weaker-than-expected economic data. Earlier this month, country's central bank to cut interest rates for the third time in six months.

"Chinese growth and Chinese demand – and other developing powerhouses like India - are going to be the biggest drivers of what happens to oil prices," Jafar said.

Read MoreGoldman: Oil will drop back to 2015 low of $45

His comments come as a number of analysts warn that further price falls are on the horizon.

"We still expect a decline in the oil price before it recovers, as the price is high relative to current and forecast fundamentals," Goldman Sachs analysts led by Christian Mueller-Glissmann said in a research note on Wednesday.

This week, the investment bank warned that crude prices would likely slump back to lows of $25 per barrel.