Low oil prices are hurting OPEC’s weaker members
Low oil prices is causing financial difficulty for OPEC’s weaker members. Venezuela, for example, has burned through billions of dollars, leaving its foreign reserves near a decade-low, to stave off default. In Nigeria, officials are struggling to stem a selloff in the currency that has left it at a record low. Libya is calling for a cut in the OPEC output target and according to a recent International Monetary Fund Report Iran, Iraq and Algeria need the price to be at least $100. The average price of OPEC’s main export grades fell below $80 a barrel for the first time in four years on Nov. 4.
OPEC members are countries, not companies, so they don’t look at the profitability of wells, they look at their revenue for a fiscal. Venezuela, which gets 96 percent of its dollar earnings from oil, loses $700 million a year for each $1-a-barrel price drop, according to state-run oil company Petroleos de Venezuela SA. Consequently the market is beginning to believe the country is likely to default on its foreign-currency bonds.
In Equador their Ministry forecasts show prices of $80 to $84 dollars will leave the government with a huge deficit of around 5% of GDP by 2015.
Nigeria needs a Brent price of $126 to balance its budget according to Deutsche Bank and in Iraq the government scrapped the 2014 budget because of political disputes and concerns over a deficit stemming from falling oil prices.
Iran’s revenue from crude sales, already curbed by U.S. and European sanctions, dropped 30 percent because of the recent price decline. Iran’s $400 billion economy shrank more than 7 percent over the past two years, according to the IMF. The country pumped 2.77 million barrels a day in October, down 23 percent since the start of 2012, according to data compiled by Bloomberg.
The Saudis can cover spending plans with Brent at $84 a barrel, according to the IMF. The kingdom could “weather even an extended downturn” below its break-even price,
Kuwait’s plans won’t be affected as long as the price is above $75, Oil Minister Ali Al-Omair said in October.
Qatar needn’t worry because it’s still the lowest-cost producer in the world, Qatar Petroleum International Chief Executive Officer Nasser al-Jaidah told reporters in Doha on Nov. 3. The countries that are going to struggle if prices remain low are Iran, Venezuela, Nigeria and Ecuador but there appears to be little sign of a rise in oil prices.