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OPEC’s Pain Is Only Getting Worse As Revenues Continue To Fall


OPEC lost $349 billion in revenue last year because of low oil prices, cutting revenues almost in half from the year before.

A report from the EIA in mid-June estimated 2015 revenues for OPEC countries at $404 billion, down 46 percent from the $753 billion the member countries earned in 2014. Revenues last year fell to their lowest level in eleven years.

Worse still for OPEC is the fact that revenues could fall even further this year, as low oil prices sank to new depths, particularly in the first quarter of 2016. The EIA projects OPEC revenues this year to drop to $341 billion. That will result in per capita oil export revenues in OPEC countries falling from $606 in 2015 to $503 this year.

For its part, OPEC put out a more dire assessment of its own finances, putting its losses last year at $438 billion, much higher than the $349 billion estimated by the EIA. That came even though overall exports climbed by an average of 400,000 barrels per day, or a 1.7 percent increase, largely because of production gains in Iraq and Saudi Arabia. The plunging revenue led to OPEC members to post a current account deficit of $99.6 billion, the first deficit since 1998. That compared to the 2014 surplus of $238.1 billion.

The largest losses came from Saudi Arabia, which saw revenues plunge nearly in half from $247 billion to just $130 billion last year. Of course, those losses merely reflect Saudi Arabia’s importance as the group’s largest oil producer and one of the largest producers in the world. The revenues that Riyadh earns from exporting oil accounts for one-third of total OPEC earnings. Related: Slavery At Sea: The Ugly Underbelly Of Oil Shipping

Obviously, whether or not OPEC sees a rebound in oil revenues depends almost entirely on what happens with crude oil prices, something largely out of the group’s control given that it no longer wants to cooperate on production limits.

So what about crude oil prices? Oil is in a state of limbo right now, having rallied more than 80 percent to $50 per barrel in recent weeks from its lows in February. Following the “Brexit” result, crude oil prices crashed amid broader global financial turmoil. Barring lasting economic upheaval from the UK’s decision to leave Europe, the plunge in prices could be fleeting. The markets will turn back to a look at the fundamentals, although the fundamentals don’t exactly offer a clearer picture of what to expect.

U.S. oil production continues to decline after a brief pause earlier this month. Last week output fell by another 39,000 barrels per day according to weekly EIA estimates, dipping to 8.677 million barrels per day. New projects coming online in the Gulf of Mexico will add 500,000 barrels per day to the U.S. total this year and next, offsetting much of the expected losses in U.S. shale, but the trajectory for the industry outside of the Gulf of Mexico is still down.

OPEC is expected to keep production more or less flat – in fact, output has declined in several member countries because of unexpected disruptions (Iraq, Libya, Nigeria, Venezuela). Some output could come back from those countries, but nothing major is expected.

All told, the markets are still heading towards a supply/demand balance later this year. The IEA, in its June Oil Market Report, sharply lowered its projected global supply surplus for the first half of 2016. Earlier this year the Paris-based energy agency expected the world to be producing 1.5 mb/d in excess of demand for the first half of the year, but this month it cut that figure to 0.8 mb/d, meaning that the markets are substantially tighter than previously thought. Related: Move Over Oil – Lithium Is The Future Of Transportation

As a result, the IEA sees the oil market moving into balance in the second half of the year (i.e., the very near future). It even sees global oil inventories falling slightly in the third quarter before rising a bit in the fourth.

So while the speed with which oil prices rise is highly uncertain, the “direction of travel seems to be clear,” the IEA concluded, suggesting that oil prices may rise and fall from day-to-day or week-to-week, but prices should trend in an upward direction.

That means OPEC revenues should begin to rebound next year after two miserable years of low oil prices.

By Nick Cunningham of Oilprice.com

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  • Bill Simpson on June 27 2016 said:
    The old adage, 'be careful what you wish for', might apply with low oil prices.
    Not enough money going into oil exploration, and future production, has to eventually create an oil shortage, and a huge price spike, because there is nothing that can rapidly replace oil products in transportation. Either a physical oil shortage, or big price spike, could cause a meltdown of the over leveraged financial system. Less oil means less work gets done, so the economy must shrink. A shrinking economy is the definition of recession. With interest rates at 0%, or even negative, good luck preventing a recession from morphing into the next Great Depression.
    A lot of the surplus money from high oil prices used to get spent on assets, and weapons purchased from the US and Europe. Less money transferred there will lower asset prices and income for workers in the chain of production. Those are negative for the economy. Less money moving around is bad. It can be deflationary.
    It is interesting to theorize what might have happened had OPEC never existed. One might argue that nearly all oil would have been produced where it was cheapest to do so. You have to figure that countries like the United States would have almost no oil industry, since oil from the Middle East, and elsewhere can be produced significantly cheaper, than in the United States. But much more oil would still be in the ground in the US. What would have been the effect on the US economy of importing nearly all our oil during the last 50 years, is way too complex for me to even guess about.
  • BS Buster on June 27 2016 said:
    As the saying goes, money is the root of all evil. So, less money in this very violent and volatile region can only be a good thing.
  • BS Buster on June 27 2016 said:
    "Bill Simpson", since oil prices hiked back in 1973, there was nothing but misery and violence from the big oil producers in the Middle East and Russia. Once, the money stops flowing to these violent and autocratic countries, the better off the rest of the world will be.

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