The collapse in global oil prices is hurting producers around the world, but no one has had it worse than the petrostates of OPEC, whose national budgets rely so heavily on revenues generated by crude production. The numbers back this up, too: OPEC’s net oil export revenues fell $349 billion in 2015 to its lowest level in more than a decade. The EIA reports:
Members of the Organization of the Petroleum Exporting Countries (OPEC) earned $404 billion in net oil export revenue in 2015, according to U.S. Energy Information Administration (EIA) estimates. These earnings represent a 46% decline from $753 billion earned in 2014. Although these net export earnings include Iran’s revenues, the net export revenue is not adjusted for possible price discounts that Iran may have offered its customers between late 2011 and January 2016, when nuclear-related sanctions targeting Iran’s oil sales were in place. […]
OPEC members’ 2015 net oil export revenue was at the lowest level since 2004, with significant implications for the fiscal condition of member countries that rely heavily on oil sales to fund social programs and to import other goods and services. In inflation-adjusted terms, OPEC net oil export revenue totaled $606 per person in 2015, down 83% from the 1980 level of $3,500 per person.
While the sheer magnitude of the cartel’s losses are mind-boggling, the reason for the drop is easy to understand. In June of 2014, Brent crude was trading above $114 per barrel. In January of this year, Brent dipped below $30, and while the European benchmark has rebounded up to around $50 per barrel today, that’s still a far cry from those halcyon $100+ days.
During all of this, OPEC has done nothing to cut into the oversupply that precipitated the price collapse, choosing instead to endure the pain in lost revenue while fighting for a share of the increasingly crowded market. Back in April, the cartel’s members met with a handful of other petrostates in Doha to try and hammer out an agreement to “freeze” production at current levels, setting an upper limit on output in order to help bring the market into balance. That effort failed after Saudi Arabia backed out of the talks, citing Iran’s unwillingness to sign onto the deal as it worked to recover its own production to pre-sanctions levels.
Iran is closer to those pre-sanctions production numbers these days, and has agreed to show up to a second round of freeze talks in Algeria next month, and that has some observers thinking that the second time will be the charm. But a couple of hiccups have renewed doubts that a freeze is in the offing. For one, Iran’s production has stalled recently, climbing just 50,000 barrels per day (bpd) last month, raising doubts that it will be able to reach its pre-sanctions levels in time for next month’s freeze. If that’s the case, expect a repeat of OPEC’s Doha debacle.
The Saudis also did their part to pour cold water over next month’s meeting, with the Kingdom’s energy minister Khalid Al-Falih telling Reuters “[w]e don’t believe any significant intervention in the market is necessary other than to allow the forces of supply and demand to do the work for us.”
But whether or not producers agree to cap their output in Algeria next month may be beside the point. A global glut got the market to where it is today, and merely stopping further increases in production won’t cut away at the underlying problem: supply is outstripping demand. In the meantime, petrostates around the world—OPEC members and non-members alike—are going to continue to lose hundreds of billions of dollars in lost budget revenue.