OPEC posts first collective deficit in 18 years

*OPEC headquarters, Vienna, Austria.

*OPEC headquarters, Vienna, Austria.

…OPEC is dead – Rosneft

Oscarline Onwuemenyi,
with agency reports

24 June 2016, Sweetcrude, Abuja – The Organization of the Petroleum Exporting Countries (OPEC) has reported a current account deficit of $99.6 billion last year compared to a $238.1 billion surplus in 2014. This is the first time since 1998 the cartel has shown a collective budget deficit.

The negative effect of the 1998 financial crisis on Asian economies and competition between Iran and Saudi Arabia for market share forced OPEC prices down to $10 per barrel. By 2014, crude prices had risen to $115 per barrel before collapsing to $27 per barrel this January. Oil has since rebounded to the current $50.

OPEC’s oil revenues were down by nearly half last year, falling 45.8 percent from 2014 to $518.2 billion, the lowest since 2005. The cartel’s exports slid in value by 29.1 percent year-on-year, while total imports declined by 8.7 percent.

According to the OPEC report, global crude demand was 93 million barrels per day last year, up 1.7 percent. The biggest upsurge in demand took place in the Middle East, Africa and Asia Pacific.

The biggest OPEC loser from falling revenues was Venezuela, which has a budget deficit of about 20 percent of the country’s GDP.

On average, the OPEC Reference Basket cost $49.49 per barrel last year, down from $96.29 the year before. The last time OPEC’s crude was that cheap was in 2004.

In 2015, the largest oil producing countries were Saudi Arabia (10.19 million bpd, Russia (10.11 million bpd) and the United States (9.43 million bpd). Overall, global crude production grew 1.75 million bpd, the second-highest increase in a decade.

The US increased output by 0.72 million bpd last year. The 8.3 percent growth in American oil production was the biggest increase in the world. UK oil production grew by 0.10 million bpd, or 13.4 percent, for the first time since 1999.

Meanwhile, Rosneft CEO Igor Sechin said over the weekend that he believes internal strife has severely curbed OPEC’s market power.

Sechin told Reuters that cartels have lost their control over the oil market and added that OPEC “has practically stopped existing as a united organization.”

Russia was among the country’s that met with OPEC and non-OPEC representatives in April to try to secure a production freeze deal in the hopes of supporting oil prices.

Those efforts failed after Saudi Arabia said it would not participate in a deal if Iran did not sign on.

Iranian officials did not attend the meeting.

Iran has consistently voiced its opposition to a production freeze as the country looks to grow
production now that Western sanctions have been lifted.

Sechin told Reuters that he had been skeptical that any deal production deal would materialize.

“The company [Rosneft)] was skeptical from the very beginning about the possibility of reaching any sort of joint agreement with OPEC’s involvement in current conditions,” Sechin said.

Sechin added that any attempts to support oil prices will most likely fail and that prices will only recover when supply and demand are back in balance.

During a speech at the opening of FT Commodities Global Summit in April, Sechin said that he expects the current global supply glut to be alleviated within two years.

The glut “will be eliminated during this period due to the growth of the global economy and consumption, depletion of the producing fields and temporary shutdown of complex and insufficiently effective projects. Low prices phase cannot last long, at least by the major reason – current prices do not secure the complete cost cycle, i.e. they generate losses for the companies, that work at complex fields,” Sechin said.

Rosneft has pushed past fellow state-owned firm Gazprom to become the largest company in Russia on a market capitalization basis last month.

Rosneft’s revenues fell 6.4 percent year-over-year to $78.49 billion in 2015 while free cash flow climb to about $9.9 billion last year, up from $9.08 billion in 2014.

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