OPEC Revenues Suffer In Oil Price War Of Attrition

The 9-month-old plunge in the price of oil combined with a decrease in exports cut into OPEC’s net earnings in 2014, according to estimates by the US Energy Information Administration (EIA).

With the exclusion of Iran, 11 of OPEC’s 12 member countries earned about $730 billion in net export revenues last year, an 11 percent drop from 2013, when the cartel earned $824 billion, and “the lowest earnings for the group since 2010,” the EIA said. These and all other dollar figures in the EIA report are not adjusted for inflation.

The IEA said Iran was excluded from the report because it is difficult to estimate the country’s earnings because of sanctions that forbid payments for oil to Tehran and any price discounts it may offer to some customers.

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In its four-page “OPEC Revenues Fact Sheet”, issued March 31, the EIA projected that the cartel’s net export revenues in 2015 will be even lower, around $380 billion, even though OPEC’s production and exports aren’t expected to change from their levels in 2014.

There are two main reasons for that: First, OPEC decided in November to maintain production levels at 30 million barrels per day rather than cut production in an effort to shore up prices. Second, oil prices were high for nearly half of 2014 before they began their fall in late June. This year has begun with low oil prices, and so far there’s no evidence that oil prices will rebound meaningfully before year’s end.

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Saudi Arabia, as usual, made the most from its exports during 2014, earning an estimated $246 billion, or about one-third of the cartel’s total export revenues. Saudi Oil Minister Ali al-Naimi, who led the OPEC move to maintain high production levels, has repeatedly expressed his country’s intention to export heavily to maintain its market share rather than cut production to support a higher price for oil.

The EIA report said this is a novel role for Saudi Arabia. Historically, it said, Riyadh has been OPEC’s “swing producer, temporarily cutting its production to offset supply growth elsewhere or weaker global demand, or increasing its output level to make up for a supply shortfall.”

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Saudi Arabia’s move was meant to fight an oil glut caused by overproduction outside of OPEC in countries such as the United States, which has been undergoing a boom in oil and gas production from underground shale formations. Shale production is expensive and Saudi Arabia hopes it will become unprofitable when the price of oil drops too far.

The EIA report says the price of oil is expected to rise by an unspecified amount in 2016, raising OPEC’s net earnings to $515 billion. That’s more than $300 billion less than the cartel earned in 2013, before prices began their fall, and more than $200 billion below net earnings in 2014, but still an improvement.

By Andy Tully of Oilprice.com

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