Oil prices rebounded today on the eve of the much-anticipated meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna, with Saudi Arabia rumored to propose a solution to struggling oil prices that have dropped to their lowest levels since the summer.
Argus Media, a London-based organization, hosted a webinar on December 2, 2015, previewing the upcoming meeting and the various goals and intentions of the cartel’s 12 members. Indonesia will be formally added to the group at the meeting, about six years after the country left OPEC because of oil prices in the $130/barrel range. The lone Asian company of OPEC seeks to capitalize on the low oil price environment (it is primarily an importer) and secure outside investment in coordination with the OPEC brand.
The existing 12 members have varying intentions, as described below by the experts at Argus. All of the cartel is feeling the pressure in the renewed commodity environment, but some (Libya, Venezuela, Algeria) are in much worse shape than others (Saudi Arabia, Kuwait, UAE). Below are some of the main points each of the country’s ministers will have in mind when they meet face-to-face on Friday.
Saudi Arabia
- The group’s largest and most influential producer is also the only one with excess capacity, leaving it in position to drive OPEC policy.
- Saudi had previously adjusted production levels both upwards and downwards to balance the market. The most notable increases have occurred with Libya turmoil and the effects from Iran sanctions.
- Rumored that Saudi wants to reduce output, but won’t do so without coordination from other major producers. Since this is unlikely, Saudi will likely stick to its market defense strategy as opposed to a price strategy.
- Production is higher – volumes averaged 10.2 MMBOPD in the first nine months of 2015, compared to about 9.5 MMBOPD for the same period in 2014. Exports in 2015 are about 0.2 MMBOPD higher.
- Needs $97/barrel Brent prices to break even.
- State budget derives 90% of revenue from exports, so 2015 revenues are expected to be 30% lower compared to 2014. That translates to a deficit of about $108 billion.
- Drawing from foreign reserves to offset shortfalls. Total value expected to be $629 billion by year-end 2015 – about 14% below 2014’s total of $732 billion.
- Borrowed $4 billion in June 2015, marking the first debt borrowing since 2007.
- Economists believe the country can withstand the current environment for an additional three to five years.
Iran
- With sanctions nearing an end, Iran is rearing to revive its export market along with its fledgling economy.
- Iran’s oil minister is prepared to regain its market share “at all costs,” even if it pushes Brent prices to $20/barrel.
- Currently has an estimated 35 to 40 million barrels stored in offshore tankers.
- Says it can immediately raise export volumes by 500 MBOPD and double the amount within six months. Analysts are skeptical and say the total number is likely to range from 300 to 1,000 MBOPD. Regardless, Iran believes it is owed its “rightful” share of the market.
- Sovereign wealth fund of $62 billion.
- Decision on atomic agreement due in mid-December, and will lead the way to sanctions being officially eased.
Iraq
- Described as being in a “dire macroeconomic situation” due to war funding, oilservice indebtedness and a rift with the Kurdistan government.
- Iraq does not report production volumes from 50/50 joint venture of Kurdistan project. It has also been exempt from production restraints since the Gulf War, so a production model may be implemented.
- Has tapped into Japan and the International Monetary Fund for emergency funds.
- Originally claimed a goal of 9.0 MMBOPD by 2020, has since dropped estimates to the 5.5 to 6.0 range.
- Occidential Petroleum and BP plc have both voiced concerns over the investment environment.
- Despite troubles, is still OPEC’s top supplier to Europe
Kuwait
- Fully supportive of Saudi market share initiative, despite political disagreements in the past. The government is wary of Saudi’s heavy handedness in dictating a market share, and the two countries have disrupted each other’s output in a production neutral zone before due to varying disagreements.
- Aims to boost volumes to 4.0 MMBOPD in 2020 from 3.1 MMBOPD currently, but does not have much excess capacity at the moment.
- Holds world’s seventh largest sovereign wealth fund and fiscal breakeven prices are only $49/barrel.
- On track to post first fiscal deficit since 1999.
Venezuela
- “Dark days for Caracas, no doubt.”
- Oil exports make up 95% of revenues, and 33% of all exports are used to pay down oil-backed loans.
- United States receives the lion’s share of Venezuela exports.
- The International Monetary Fund projects a 10% drop in gross domestic product along with a triple-digit inflation rise.
- President Nicolas Meduro has toured the world searching for additional investment and has been very outspoken regarding Saudi’s tactics. Meanwhile, he is losing support of the public in his homecountry.
- Dozens of tankers are backed up offshore with nowhere to go due to delayed payments from the government.
UAE
- Citizens currently do not pay income taxes and are therefore supportive of the market share initiative, but things could change if the government adjusts the program.
- Fiscal breakeven price of $74 barrel
- Plans on boosting output to 3.5 MMBOPD from 3.1 MMBOPD, with its primary destinations in Asia.
Nigeria
- Treasury was “virtually empty” in June
- Currently tasked with reforming an industry plagued by corruption, insurgency and theft.
- On track to hit a three-year high of 2.2 MMBOPD.
- In need of offshore investment, but low commodity prices and a generally unsafe environment has companies balking at its prospects.
Algeria
- Referred to as a “price hawk,” and has joined Venezuela in being among those most vocal against the Saudi strategy.
- Maintaining subsidies and social programs to solidify public support. However, the government cut its 2016 budget by 9%, froze hiring and drew $16 billion (roughly 33%) from its oil stabilization fund.
- Foreign exchange reserves declined 20% and are now in the $160 billion range.
Angola
- International Monetary Fund said any signs of a recovery will not occur until 2017.
- Oil accounts for 90% of earnings and 75% of revenues. Government sharply cut 2016 price expectations to $40 from $80.
- China is the largest buyer and has extended “massive” lines of credit, but is slowly opting to Saudi and Russian volumes while squeezing Angola out of the market.
- One-third of the country is below the poverty line, while the President is the richest person in the nation, raising public dissention.
- Offshore development in serious doubt.
Libya
- Production has never recovered since the Gaddafi regime was overthrown – current production of 400 MBOPD is just 25% of 2011 volumes.
- Four of five offshore terminals are not shipping crude.
- Foreign reserves fell by $30 billion last year.
Qatar
- Oil has taken a back seat to liquefied natural gas, and is now in need of future investment.
- Falling oil prices have also weighed on LNG prices but the company is very well off due to its favorable production and few citizens
- Is the largest LNG provider in the world, supplying 33% of global LNG
- Maintains a rivalry with Saudi Arabia, as the two countries have contributed funds to opposing militias throughout the years.
- Breakeven oil price of $89, but does not plan to end any subsidies in the near future.
Ecuador
- OPEC’s smallest producer and volumes have been stagnant for years.
- Government assuming $35/barrel prices in 2016.
- Uses US dollar as currency, so its exports are not benefiting from any depreciations
