(MENAFN- The Peninsula) By Satish Kanady / The Peninsula
DOHA: Energy policymakers in the GCC are downplaying any possible threat from shale oil production and maintain a constructive bias on the crude oil market. Overtightening the market and a gradual exit from the Opec plus deal are more likely than not. A change to the five-year inventory level target in June is possible on market conditions, Bank of America Merrill Lynch (BofAML) noted after its just-concluded ‘GCC macro/credit trip'.
Sharing the takeaway from the bank experts' GCC macro/credit trips, as well as the investors' views, the Merrill Lynch's MENA Economist Jean-Michel Saliba said the ‘worst of the economic fallout of the GCC crisis for Qatar may be over.'
The bond supply pipeline in the region appears still crowded, as most sovereign issuers have plans to tap the market this year. For Qatar, a return to the international bond market is required for the rollover of this year's maturities.
BofAML sees Bahrain at risk of attempting to issue international bonds near term without explicit GCC support. It expects Saudi priorities with respect to Bahrain to include sustaining the regime, supporting the USD peg to prevent contagion, and minimising the amount required to support Bahrain. Support may not be provided until Bahrain reserves dry out or the sovereign is priced out of the market, and these dynamics will likely become clearer by end 1H18 given low forex reserves.
'Given that the bulk of external financing is in the form of sovereign bond issuance, any debt restructuring could endanger the USD peg, unless an umbrella of GCC financial support is put together to provide financing until Bahrain can come back to the market after a credible fiscal consolidation program. This could entail an expensive and long engagement from the GCC. An IMF program seems unlikely, given the poor history of engagement, stigma associated with it and harsher conditionality versus a GCC-led bailout. Jean-Michel said.
Alternatively, explicit GCC support, coupled with credible front-loaded fiscal consolidation, could lower Bahrain's funding costs and lengthen the timeline to achieve fiscal reforms. This could be the preferred support mechanism from the GCC, in BoAML's view.
On the ongoing diplomatic stand-off in the region, the bank said the crisis appears unlikely to be resolved in the near term, although diplomatic efforts will continue in the run-up to the potential Camp David summit in May.
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