In this report, we forecast that Bahrain will account for 0.39% of Middle East regional oil demand by 2013, while providing just 0.20% of supply. Regional oil use of 8.24mn barrels per day (b/d) in 2001 rose to 11.25mn b/d in 2008. It should average 11.30mn b/d in 2009 and then rise to around 12.17mn b/d by 2013. Regional oil production was 22.87mn b/d in 2001, and in 2008 averaged 26.29mn b/d. It is set to rise to 28.01mn b/d by 2013. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 14.63mn b/d. This total had risen to 15.04mn b/d in 2008 and is forecast to reach 15.84mn b/d by 2013. Iraq has the greatest production growth potential, followed by Qatar. In terms of natural gas, the region in 2008 consumed 391.5bn cubic metres (bcm), with demand of 512.8bcm targeted for 2013, representing 31.0% growth. Production of 389.5bcm in 2008 should reach 610.4bcm in 2013 (+56.7%), which implies net exports rising to 98bcm by the end of the period. Bahrain’s share of gas consumption in 2008 was 2.35%, while its share of production is put at 3.44%. By 2013, its share of gas consumption is forecast to be 2.46%, with the country accounting for 2.13% of supply. For 2009 as a whole, we are now assuming an average OPEC basket price of US$55.00 per barrel (bbl), a 41.5% decline year-on-year (y-o-y). This represents an upgrade from the US$52 forecast we have stuck with during the past three quarters. Our OPEC basket assumption delivers likely Brent, WTI, Urals and Dubai prices of US$56.30, US$57.50, US$55.60 and US$55.60/bbl respectively. For 2010, we expect to see a recovery to US$60.00/bbl for the OPEC price (up from our previous forecast of US$58), gaining further ground to US$65.00 in 2011 and to US$70.00/bbl in 2012. Our post-2010 forecasts are unchanged and we are continuing to use a long-term price assumption of US$70.00 for 2013-2018. In 2009, BMI is now assuming a global average gasoline price of US$62.12/bbl, with the fuel having peaked in June. The overall y-o-y fall in 2009 gasoline prices is put at 40.0%. The BMI gasoil forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December. The fullyear outturn represents a 43.4% fall from the 2008 level. The annual jet price level for 2009 is forecast to be US$65.17/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put by BMI at US$49.06/bbl, down 43.9% from the previous year’s level. Bahrain’s real GDP is now forecast by BMI to fall by 0.1% in 2009, following growth of 6.6% in 2008. We are assuming 1.3% growth in 2010, 1.7% in 2011, 1.9% in 2012, and 2.0% in 2013. Consumption of oil is set to rise slowly with the subdued growth of the economy, reaching a maximum of 48,000b/d by 2013. The state accounts for all domestic oil and gas production, as well as the refining and distribution segment. International oil company (IOC) involvement is very limited. Thanks to a lack of resources potential and the absence of large-scale IOC upstream ventures, crude and liquids output is now averaging 48,000b/d; however, no further significant near-term decline is expected. We are assuming liquids volumes will rise towards a peak of 60,000b/d by 2012. Gas output is set to decrease slightly from 13.4bcm in 2008 to 13.0bcm during the period, providing a broadly balanced market. Between 2008 and 2018, we are forecasting a decrease in Bahrain oil production of 16.7%, with crude volumes peaking in 2012 at 60,000b/d, before falling to 40,000b/d by the end of the 10-year forecast period. Oil consumption between 2008 and 2018 is set to increase by 34.4%, with growth at an assumed 3.0% per annum towards the end of the period and the country using 55,000 b/d by 2018. Gas production is expected to climb towards 15bcm by 2014-16, then decline to 14bcm by the end of the period. With 2008-2018 demand growth of 74.8%, this provides an import requirement rising to 2.1bcm by 2018. Details of BMI’s 10-year forecasts can be found in the appendix to this report. Bahrain shares seventh place with Israel in BMI’s updated Upstream Business Environment rating, above Kuwait and Saudi Arabia. It stands third from last because of the very modest oil and gas reserves, poor production growth outlook, low reserves-to-production ratios (RPR) and modest non-state involvement in the upstream segment. The country’s risk environment is very sound, but this may prove insufficient to help Bahrain challenge Oman above it in the league table. It may, however, be able to keep Kuwait at bay. The state is ranked equal seventh alongside Iran in BMI’s updated Downstream Business Environment rating, with few high scores and progress further up the rankings unlikely. It is ranked third from last thanks to low scores for refining capacity, oil and gas demand, population and the privatisation trend. The growth outlooks for oil/gas consumption and refining capacity also represent relatively weak suits, along with the pedestrian increase in GDP per capita. Kuwait is immediately behind it in the regional rankings, and there is some risk of it challenging Bahrain.