January 26, 2016 - 10:25 PM EST
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Uganda's Oil Still Viable, Says Stanchart's Razia Khan

With global crude oil prices falling to below $35 a barrel, down from the $100 in the middle of 2014, there are worries that

could be heading to something disastrous with its plans to produce hydrocarbons. Standard Chartered thinks otherwise, though, writes ALON MWESIGWA.
oil prospects remain bright even in the face of the current global slump that has seen a barrel of oil selling for a little more than a bucket of Kentucky Fried Chicken.

Razia Khan, Standard Chartered bank's chief economist for

global research, said the markets were not pricing the oil based on strong fundamentals, and that the bank was confident the prices would recover from their $30-a-barrel mark in the future.

"Standard Chartered is bullish on oil prices," she added. "We may not have been seeing [an increase in the price of oil] in the very near term but we believe markets are not pricing on fundamentals and when they do, the oil price will come back. That's ultimately the good news." Khan was speaking to reporters at the bank's head office in

last week.

The fall in the price of global crude oil to below $28 a barrel recently, the lowest since 2002, has cast questions on whether it would still be profitable for

to move ahead with plans to produce oil.

Khan, however, pointed out that "

is still seen as one of the winners," Khan said.

Last week, Adewale Fayemi, the general manager of Total E&P, in an interview with The Observer, said

was in a strong position to reap from its oil resources, especially when the price of oil was low.

"When you start a project when the price is at the bottom, you can only hope that by the time the project [matures] after four or five years, the price has gone back up. So, it is a win-win situation [for everyone]," he said.

The lifting of sanctions on

, which could see more oil flood the market, could only increase fears for prospecting countries. For
, sector players have cut down on their investments while the source of financing for key projects such as the refinery and the pipeline remains unclear.

Analysts have said for

to break even, the oil price must be at least $70 a barrel. Khan said while at this time the price can go anywhere, including $10 a barrel, the price could recover to at least $50 by the end of this year.

Khan warned though: "The longer the uncertainty over prices, the more problem it's going to be before

starts to get the benefit of that oil."

Khan explained that even when the prices of oil are going down,

, which has seen the amount of money it spends on its import bill where oil takes up the lion's share, has not benefited as much as it should to narrow its current account deficit.

"Even though oil imports have come down naturally because of the price, other imports have started to rise. So, you haven't really seen the full benefit of this lower oil price," she said. "It's not having the desired impact in just fixing

trade balance in one go."

The current account deficit, which measures a country's trade in which the value of goods and services it imports exceeds the value of goods and services it exports, is expanding rather than narrowing, she said.

But according to Bank of

, the country's imports fell by 9.2 per cent in the quarter to October 2015, from $1.6bn in the same period in 2014 to $1.5bn. This is due to the decline in the value of oil imports - which declined by 34 per cent - reflecting the decline in international oil prices, BOU said in its December 2015 report.

The non-oil private sector imports have also declined by 8.2 per cent, which could reflect the declining private sector demand as well as the impact of global disinflation.

On the country's gross domestic product growth prospects, Khan said

could still achieve five per cent in 2015 and then 5.5 per cent in 2016.
huge infrastructure projects will be the drivers of this growth.

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Source: Equities.com News (January 26, 2016 - 10:25 PM EST)

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