Oil prices are forecast to average $ 107 a barrel this year, well above breakeven prices for Gulf producers, Fitch Ratings has said in a new report.

Fitch said in its latest bi-annual global Sovereign Review and Outlook that the economic and rating outlook in the Middle East and Africa remains dominated by the impact of oil prices and political risks.
The report said that although the oil price has fallen from its peak in March, Fitch’s latest forecast is for the Brent oil price to average $ 107 this year.

Saudi Arabia’s budget breakeven price has eased to just over $ 70a barrel, Fitch said, as production has risen substantially to make up for sanctions constrained production in Iran.

"Strong fiscal and current account surpluses - a feature also shared with Kuwait and Abu Dhabi - will allow Saudi Arabia to continue with its ambitious infrastructure program," the Fitch report said.

"More active labor market policies are also beginning to have an impact on employment of Saudis in the workforce," it added.

Last month, the International Energy Agency (IEA) said oil prices are likely to stay high due to geopolitical risks despite a dramatic improvement in world supply resulting in a big build in stocks.

The agency, which advises 28 industrialized nations on energy policy, said global oil supply rose 600,000 barrels per day (bpd) to 91 million bpd in April and was now 3.9 million bpd over year ago levels, with 90 percent of the increase coming from OPEC.

But the IEA said in its monthly Oil Market Report that uncertainty remained and the agency, which last year released strategic oil stocks to compensate for the outage of Libyan production, would be ready to act if necessary.
Oil jumped more than 6 percent Friday, headed for its biggest daily gain in more than a year after European leaders hammered out a deal to shore up euro zone banks.

Brent crude oil has fallen by 20 percent in the second quarter, but on Friday the contract for August delivery was up $ 5.11 to $ 96.47 a barrel. The daily gain of more than 5.5 percent, the biggest since May 2011.
US crude was up $ 6.29 at $ 83.98 a barrel posting its biggest daily percentage gain since February 2011. It remains down 18 percent for the quarter.

Meanwhi,le, supply from OPEC has averaged 31.63 million barrels per day (bpd), down from a revised 31.70 million bpd in May, the Reuters survey of sources at oil companies, OPEC officials and analysts found.