By the Numbers: Problems Ahead for OPEC
So far OPEC has been relatively successful at cutting oil production and keeping oil prices propped up. Saudi Arabia is leading the charge saying, more or less, it’s going to do what needs to be done.
They have been able to stick together, but how long can it really last?
It’s been somewhat of a surprise to see most of the OPEC members “stick to the plan” so far. Back in A Slippery Slope Ahead for Oil Prices, we looked at:
Falling oil prices puts these countries into a bind…
…a lot of countries will be facing big problems if oil falls further or if they cut production enough to keep oil prices propped up. When hard times hit, OPEC members look at what’s best for themselves instead of the group.
Since then oil prices have fallen off quite a bit and have reached what appears to be a bottom – at least a temporary one. And anytime oil prices to start to move up, there’s always some government economic data or Nouriel Roubini to knock oil prices right back down.
You’ve got to remember, it’s only been six months since oil was over $140 a barrel. Oil producing countries made it through the first part of the downswing, but some big budget shortfalls are coming.
A recent IMF study shows a lot of countries are truly “addicted to oil.” In fact, most of the leading oil producing countries, OPEC and non-OPEC, won’t even be able to pay the bills in 2009 without oil prices rebounding - quickly.
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What Oil Wealth? Minimum Oil Price for Balanced Budget |
||
|
Country |
2008 |
2009 |
|
United Arab Emirates |
$23 |
$24 |
|
Qatar |
$24 |
$24 |
|
Kuwait |
$33 |
$34 |
|
Azerbaijan |
$40 |
$35 |
|
--------------------- |
------- |
------- |
|
Libya |
$47 |
$53 |
|
Saudi Arabia |
$49 |
$54 |
|
Algeria |
$50 |
$60 |
|
Kazakhstan |
$59 |
$67 |
|
Bahrain |
$75 |
$84 |
|
Oman |
$77 |
$78 |
|
Iran |
$90 |
$90 |
|
Iraq |
$111 |
$94 |
There’s plenty more that lived high on the hog while oil prices were high. Venezuela needs $95 oil just to fund all his social programs and breakeven in 2009. Russia will be running a deficit too if oil doesn’t average $70 a barrel next year.
They’ve all got to do something. They can borrow at extremely high rates of interest, if any lenders are even available. They could cut spending; raise taxes, or some combination thereof. None of which is likely going to go over too well with the citizens. Or they can just print money. Regrettably, the easiest option is probably the worst.
Good investing,
Andrew Mickey
Chief Investment Strategist, Q1 Publishing
