The OPEC haves and have nots

Scott Tong Apr 19, 2016
HTML EMBED:
COPY
Qatar's Minister of Energy and Industry Mohammed Saleh al-Sada (R),Saudi Arabia's minister of Oil and Mineral Resources Ali al-Naimi (C), Venezuela's minister of petroleum and mining Eulogio Del Pino (L) attend a press conference on February 16, 2016 in the Qatari capital Doha. OLYA MORVAN/AFP/Getty Images

The OPEC haves and have nots

Scott Tong Apr 19, 2016
Qatar's Minister of Energy and Industry Mohammed Saleh al-Sada (R),Saudi Arabia's minister of Oil and Mineral Resources Ali al-Naimi (C), Venezuela's minister of petroleum and mining Eulogio Del Pino (L) attend a press conference on February 16, 2016 in the Qatari capital Doha. OLYA MORVAN/AFP/Getty Images
HTML EMBED:
COPY

Oil producing countries are still processing the fallout of a failed meeting last weekend. The plan was to freeze production at current levels for many OPEC members, plus non-members including Russia. Today prices actually bounced up. But if key producers keep pumping full bore, supply may continue to outrun demand and keep prices down.

But the fiscal effects of low prices vary by producer. Some have money stored up for times like this, while others teeter on the financial brink. Two countries that pushed hard for a producer freeze last weekend are Venezuela, where there are food shortages, and Russia.

“Below $40 a barrel, President Putin has to make some very unpleasant decisions, like raising taxes on his oil industry,” said consultant Bob McNally of the Rapidan Group and author of the upcoming book “Crude Volatility: The History and the Future of Boom-Bust Oil Prices.” “And if you go into the teens, the Russians need to then think about cutting salaries for soldiers and workers.”

Many historians believe one of the nails in the coffin of the Soviet Union was a prior oil collapse in the late 1980s.

Also highly exposed: Iraq.

“Their choice will be to hollow out even further their ability to fight ISIS, to stop repairing the electrical grid, and cut the availability of food and fuel for their citizens,” said David Goldwyn of the energy advisory Goldwyn International Strategies.

The list of fiscally fragile petroleum states includes Algeria, Azerbaijan and Libya. What producer countries did during the recent oil price boom was plan their budgets assuming high prices and high revenue. Nigeria and Angola assumed crude would sell for over $80 a barrel.

“Given we live in a less than $40 a barrel environment, they are now seeking to close billion dollar or more budget deficits,” said Africa investment advisor Aubrey Hruby.

Both are now seeking IMF financial help.

If any country can be deemed a winner of what one analysts calls the oil “Hunger Games,” Saudi Arabia has years of savings stored up, as do Kuwait and the United Arab Emirates.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.

Raise a glass to Marketplace!

Just $7/month gets you a limited edition KaiPA pint glass. Plus bragging rights that you support independent journalism.
Donate today to get yours!