…OPEC revenue slumps To Four Year Low
As the proposed huge allowances for the nation’s crowd of legislators continue to spark public debate, indications from oil export market post gloomy short to medium term revenue profile for the country and other OPEC members that are resource dependent.
Expectation of foreign exchange income recovery to drive the agenda of the new government may have been dashed following strong signals that export prices of crude oil might continue to face a downward pressure from oversupply. Oil export receipts account for over 95 percent of Nigeria’s foreign exchange revenue, over 80 percent of total funding support to annual budgets of the three tiers of government and over 70 percent of total investment funds in the petroleum industry. However, the poor industrial development status of the country has severely impaired the capacity domestic economy to attract patronage from the huge petroleum industry budgets, making the country resource dependent and unindustrialized.
Worse still, the country’s bicameral legislature and huge allowances of Nigerian lawmakers continue to draw analysts’ concern about the economic adversity that faces the country in the face of declining oil income. According to the Organization of Petroleum Countries (OPEC), the 12 countries that form the group face gloomy market future as their strategy of protecting market begins to take heavy tolls on returns on exported oil and condensate volumes. Despite falling export revenue as a result of turgid market, the group has restated its resolve to keep its notional production ceiling at 30 million barrels per day while indications are rife that quota rascality will continue to compel overproduction and supply glut in the market.
According to data from the organization’s Vienna secretariat, the group’s cumulative oil income depreciated by 11 percent to $993.3 billion, a figure below the trillion dollar mark for the first time in four years. OPEC’s annual report which indicated production boom and dwindling revenue highlighted how slumping crude prices hurt countries like Nigeria which are reliant on oil sales to fund their economies. The group’s 12 members earned $993.3 billion in 2014, a decrease of 11% from a year earlier, according to the Organization of Petroleum Exporting Countries’ annual report.
“According to data from the organization’s Vienna secretariat, the group’s cumulative oil income depreciated by 11 percent to $993.3 billion, a figure below the trillion dollar mark for the first time in four years.”
Their combined current account balance slumped by 35% to $273.6 billion as the drop in exports was accompanied by an increase in imports in some countries like Nigeria which continues to be a key exporter of crude oil and major importer of refined products. The revenue drop shows the strain on the group’s members as they increase pumping at a time of oversupply, following a Saudi Arabialed strategy of defending market share instead of prices. OPEC nations agreed on June 5 to keep a production limit of 30 MMbopd, a level they have exceeded every month since June last year, according to data compiled by Bloomberg. “Given the weakness in the first half of the year, another sub-one-trillion-dollar revenue year remains on the table,” Hamza Khan, an Amsterdam-based senior commodity strategist at ING Bank NV, said by email Wednesday.
The impact on the government finances of some OPEC members could be mitigated by increased production and foreign direct investment, he said. Brent for August settlement gained 1.2% to $64.43/bbl at 9:48 a.m. local time on the London- based ICE Futures Europe exchange. The benchmark crude has rebounded 43% since reaching a six-year low of $45.19 in January. If OPEC keeps pumping at current rates through the third quarter, production will have exceeded demand for the longest period in at least three decades, International Energy Agency data show.
Almost all the group’s members are not earning enough from current oil prices to balance their budgets, according to data compiled by Bloomberg. “OPEC members may have been blind-sided by lower revenues last year, but they appear to be mitigating risks moving forward,” Khan said. Venezuela, which had been one of the most vocal OPEC members in calling for production cuts to support the oil price, has changed its stance. The country’s Oil Minister Asdrubal Chavez said Tuesday the oil market will stabilize by the end of this year and called the June 5 meeting “very successful.” In the face of tight revenue flow from the oil export market, the current budget for the nation’s law makers have continued to raise critical questions on the management of resource wealth in the country where, according to development agencies, most of the citizens live below the poverty line.